HC Deb 11 May 1972 vol 836 cc1580-692

4.39 p.m.

Mr. Joel Barnett (Heywood and Royton)

On a point of order, Sir Robert. I should be obliged if you would consider, when we come to discuss Amendment No. 31 and the associated group, whether we could have separate votes on Amendments Nos. 60 and 61.

The Chairman

I am obliged to the hon. Member for giving me notice that he would raise this question. I will give him an answer a little later in the proceedings, I hope in good time.

Sir Derek Walker-Smith (Hertfordshire, East)

I beg to move Amendment No. 24, in page 98, line 4, at end insert:

7. Works of art, being—

Paintings, drawing, pastels, collages and other assemblages in whatever medium (whether or not incorporating mechanical features or reproductive processes) executed by hand but excluding—

  1. (a) original plans and drawings, for industrial. architectural or engineering purposes;
  2. (b) original designs or drawings for fashion models, jewellery, wall-paper, fabrics, furniture, etc.;
  3. (c) theatrical scenery, studio back-cloths or the like, of painted canvas;
  4. (d) hand-painted or hand-decorated manufactured articles such as holiday souvenirs, boxes and caskets and ceramic wares classified under their own appropriate headings.

Original engravings, prints, lithographs or other impressions, produced directly in black or white or in colour, from one or more plates, blocks, stencils or other medium, wholly executed by hand, irrespective of the process or material employed excluding any mechanical or photo-mechanical process, and the plate, block, or other material from which the impression is made.

Original sculpture and statuary in any material and whether in the round, in relief, or intaglio excluding mass produced reproductions or works of conventional craftsmanship of a commercial character.

Postage, revenue and similar stamps (including stamp-postmarks and franked envelopes letter-cards and the like), used, or if unused not of current or new issue in the country to which they are destined.

Collections and collectors' pieces of zoological[...] botanical, mineralogical, anatomical, historical, archaelogical, paleontological, ethnographic or numismatic interest. Antiques of an age exceeding 75 years not included in the above headings.

Works of art and collectors' pieces of an educational, scientific or cultural character not included in the above headings.

In accordance with the seemly practice of the Committee, I must declare an interest in the technical sense of the term in that I am a director of an art gallery in Albemarle Street. I should not like the Committee to get any exaggerated idea of the importance of this. It is a modest interest, and acceptance of the Amendment would not make me a millionaire, nor would its rejection cause me to starve.

Having made that declaration of technical interest, I declare three more general interests which I hope are shared by all hon. Members: an interest in the contribution which the art trade makes to the national economy; an interest in the cultural and social aspects of this matter; and an interest in the fashioning of our laws so that they reflect logic, equity and clarity.

I put the case for the Amendment under those three heads. I start with the last one, which is perhaps appropriate, because Parliament is a workshop and the legislative product is what we are here to make. Value added tax is referred to as a comprehensive tax, but it is not so comprehensive as not to admit of exceptions. Comprehensiveness is at most a generalised aspiration tempered by acceptance of many justifiable exceptions. My right hon. Friend the Chancellor of the Exchequer referred to this point on Tuesday at column 1152 of HANSARD. These exceptions cannot be properly limited to the items in the 13 groups in Schedule 4. We can hardly suppose that the pattern prescribed in the Bill is so precise, correct and perfectly fashioned as to be incapable of improvement. It would be wholly contrary to experience and probability that the first thoughts of Government, particularly in so novel and complex a matter as this taxation, should fall into this Olympian category.

We can start with the proposition that there are no fixed positions in this matter. If we look at the 13 groups already in Schedule 4, the Committee will perhaps agree that works of art are not, at any rate demonstrably, inferior to some of the categories already in them, such as caravans and newspaper advertisements, to take but two examples. There is no basic inferiority and there is no generic reason why works of art should not rank for equal treatment.

This case is, on the face of it, stronger than most of the cases put in this Committee because, whereas most cases require the addition of new groups to the Schedule, this Amendment does not. Works of art fit into an existing group, being a natural concomitant of Group 3. Group 3 is comprised generically of books and similar commodities, and works of art have shared a long history of a similar tax treatment with books. They shared the initial exemption from purchase tax but on rather different grounds—books as being a tax on knowledge, works of art for the less grandiose reason that they were second-hand goods.

But one never looks a gift horse in the mouth, and I dare say that the art trade would not say "No" to any amelioration of value added tax, even if it came under that rather unspectacular designation. Be that as it may, books and works of art have shared this exemption for 30 years. Now, with VAT, this congruity of treatment is to end. Books are to continue on the privileged path, of which I am glad, but the parity of treatment accorded to works of art is to finish.

4.45 p.m.

There is no discernible logic in this pattern. Some items in Group 3 may be profusely illustrated—brochures, pamphlets, and so on—and it is difficult to see therefore by what criterion they are preferred to works of art for zero-rating. If sheep and goats there must be, it almost looks as if the pens have become a bit mixed up.

The anomalies which will result are not merely abstract. There will be very real anomalies which I can illustrate by a brief reference to etchings. With etchings, unlike paintings, the original production is not limited to one but extends to the whole edition produced from the artist's work, all identical. Earlier, etchers were much given to the production of portfolios or books of etchings, such as Cotman's 1811 book and hisLiber Studiorum, which is currently on exhibition in London. Such portfolios constituted, in effect, a dual purpose album. They could be looked at as a whole or individual etchings could be hung as single prints.

Now, after more than a century, this duality is to end. Books of etchings will come into Group 3 and be zero-rated, whereas an identical etching from the same edition but sold singly will be subject to VAT. The anomaly is aggravated by the fact that the rich man who can afford to buy the book of etchings will buy without liability to VAT and the man of more modest means who buys a single etching will be liable to pay an increased price.

A further and more fundamental consideration is that works of art do not fit the basic concept of VAT. This basic concept is spelled out in paragraph 8 of the White Paper: a tax which is paid by each trader on the value which he adds to any goods (or services) during his particular stage of the process of production or distribution.

It is, in final effect, a tax on consumer expenditure—that is a clear picture of the philosophy of VAT—and it is based on the progress of a commodity with value added stage by stage until it reaches the consumer, who enjoys the totality of the value in a final act of consumption and on whom therefore appropriately the totality of the tax is concentrated.

That is a very logical pattern, but it does not fit works of art. With works of art, there is no steady progress to a final climax of consumption, no progress in a linear sense from stage to stage. On the contrary, there is an endless revolving from hand to hand of an object, unchanged of itself, and subject to no intermediate processes. But, though there are no intermediate processes, there can be many intermediate transactions, and on each occasion VAT will be charged in a cumulative process in what is known as "the cascade ". That must inject a sharply inflationary stimulus into the price of works of art. In doing so, it will necessarily accelerate the outflow of national art treasures because, whereas British purchasers will have to pay the inflationary price, foreign purchasers will pay less because such purchases will rank as exports. Therefore, in effect, we shall be subsidising the export of works of art which it is public policy to retain in this country.

These temporary British owners of works of art are not all of a kind. Some are taxable persons, and some are not. Each time non-taxable persons are involved all the earlier inputs will be lost, though the non-taxable person may pay capital gains tax for good measure when he comes to sell or realise.

Nor is there any final consumer as contemplated in the White Paper, as is basic to the philosophy of VAT. There is no end to what I call this revolving process, save only where the work is in the possession of a museum whose trust deed gives no power of sale.

I summarise this part of the argument with three propositions. First, there is no question of absolute comprehensiveness or perfection of the present pattern. Secondly, the additional categories for zero-rating must be judged according to the purpose and philosophy of VAT and by reference to the generic similarity to existing groups. Thirdly, by these tests, works of art are unsuited to VAT and fall naturally within Group 3.

I will refer shortly to the economic aspect. London is now established as the centre of the world art market. It is salutary to remember how recently this position has been achieved and the factors contributing to it. We can see the growth of the market and its contribution to the acquisition of foreign exchange and the balance of payments in the recorded figures for export over the last two decades: from £4 million in 1950 to £57 million in 1970. The primary factors are the expertise, fair dealing and good repute of dealers in London. These have been powerfully assisted by the absence of import duty, purchase tax, and all the irksome procedures flowing therefrom.

These advantages could not have accrued accidentally. They have been due to public policy and Government action. Indeed, the liberal approach of Sir Stafford Cripps in the 1940s—the arch-apostle of austerity as we used to think—helped the London market to get this position. I am sure that my right hon. Friend would not want it to be thought his little finger was thicker than Sir Stafford's loins. But VAT will break this liberal tradition of taxation. I do not suppose that it will break London as an international art market—I am sure that the quality of the market is too high —but it would necessarily handicap it. Though foreigners will buy free of VAT, works imported for sale in London will carry VAT. In addition, there will be liability for the commission to the auctioneer or dealer. I am aware that there is some exemption in Item 1 of Group 8, but only for overseas traders. Most of the major works of art sent to London for sale come not from overseas traders but from private owners overseas.

On the economic aspect I ask the Committee to reflect on the position in the countries of the Community. In some instances VAT is charged on works of art, but in every case in a modified form. In Belgium, Germany, Luxembourg and the Netherlands it is charged at a reduced rate of about a third to a half of the standard rate: Belgium 6 per cent. against a standard rate of 18 per cent.; Germany 5.5 per cent. against 11 per cent.; Luxembourg 5 per cent. against 10 per cent.; and the Netherlands 4 per cent. against 14 per cent. In France works sold at auction are exempt on the payment of a registration fee, and works sold by dealers have VAT only on a notional profit margin. There may be scope for consideration here if my right hon. Friend wants to ameliorate the position, short of full zero-rating, by confining VAT to commission or notional profit; that is, to charge it on services, not on goods.

I now make a brief reference to the cultural and social aspect. I mention he word "cultural" with some diffidence in the Committee stage of the Finance Bill, not because I am apprehensive of any Goeringesque reactions on the part of hon. Members or that they will reach for their dialectical revolvers, but in the Finance Bill we must concede that economic considerations must normally prevail.

Nevertheless, there is a social aspect to taxation. We prefer, wherever possible, to tax commodities which are injurious rather than those which are beneficent, such as works of art.

I should not like the Committee to think that an Amendment like this can be dismissed as simply a rich man's concession. The purchase of works of art is more widespread and on a lower financial plane than is often supposed. It is the big sales that make big news, but these are the exceptional highlights. The supply of old and indeed modern masters is limited. These famous sales are only the tip of the iceberg. Auctioneers and dealers alike are mainly concerned with the numerous sales at far more modest figures to modest people. The two most famous auction houses sell two-thirds of their lots for less than £100 each.

There is another consideration, less precise and less ponderable, but important in that it derives from the character of the commodity. Works of art as a commodity are exceptional because they are somewhat apart from the daily round. I do not want to over-stress this point. I accept that the primary preoccupation of society, and therefore of Government, is to secure as good a life as possible for those people currently comprising that society. However, a single generation is not a self-contained entity without benefit of heritage or duty of bequest.

In works of art there is a continuing quality, a cultural element, which calls for a liberal approach in taxation. Major works of art are Kηµ⎬αζ —possessions for all time—gratefully received and proudly held in trust, as our museums and galleries bear witness. However, even more modest works, including works of living artists, represent something with a special claim on our consideration as outpourings of the human spirit and manifestations of its creative impulse.

My right hon. and hon Friends and 1 have no pride of authorship or claim to originality in the definition appearing in the Amendment. On the contrary, as becomes humble back benchers when putting a case to the Chancellor of the Exchequer, I asked myself the question: Is there no voice more worthy than mine own to sound more sweetly in great Ceasar's ear?

I found the answer, as I would expect, in a place more dear in the general context to my right hon. Friend than to myself—in Brussels. My definition is taken from Chapter 99 of the Brussels Code. It is well known to my right hon. Friend and to Customs. Therefore, I have resisted all temptation to try to improve it.

However, we are not wedded to theipsissima verbaof the Amendment. The Amendment, like all back-bench Amendments, is designed to raise this matter in principle. If the drafting is imperfect or the terms too wide, perhaps my right hon. Friend will see what he can do to remove the anomalies and inequities which, owing to its idiosyncratic features, the art trade would suffer from the imposition of VAT in its standard form.

We are putting the principle on these strong and various grounds. I am sure that my right hon. Friend is not disposed to emulate the regrettable attitude of that eminent Victorian Minister who testily observed to Carlyle, "May the devil fly away with the fine Arts ". On the contrary, I am sure that my right hon. Friend will listen with patience and understanding to what we say and, having listened, will recognise the compelling strength, if not of this precise Amendment, of the general case for some amelioration.

[Mr. E. L. MALLALIEUin the Chair]

5.0 p.m.

Mr. John Cronin

The right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith) has moved the Amendment persuasively, with considerable wit and erudition and I am sure that hon. Members on both sides of the Committee feel considerable sympathy with him. Although it is obviously desirable that the sale and production of works of art should be stimulated in every way, we must have our priorities right and, compared with certain other items which we have to consider as possible candidates for exemption from VAT, works of art have a low priority.

The first point on which I take issue with the right hon. and learned Gentleman is that works of art are purchased in the main by well-to-do or wealthy people.

Sir D. Walker-Smith


Mr. Cronin

When I visit the homes of my miners or hosiery workers I rarely see a work of art or anything which would fit into the extensive list included in the Amendment. We must accept that works of art are generally produced for and sold to people in the higher income groups. For anyone who believes the contrary, it is a small jump to believing that the earth is flat.

The Committee should avoid giving concessions to the wealthier higher income groups. If the Chancellor were to accept the Amendment, or even promise to give it favourable consideration in the future, he would be in an invidious position if at the same time he rejected the important Amendments which we shall move from this side of the Committee relating to the exemption of children's clothing, children's shoes, surgical appliances and numerous household goods.

Had the right hon. and learned Gentleman consulted hon. Members on this side of the Committee we might have been prepared to accept his Amendment on works of art if we could have been assured of the votes of the right hon. and learned Gentleman and his hon. Friends for our important Amendments —but that is an unlikely contingency.

The value of works of art tends to escalate. For instance, an Impressionist painting which before the Second World War would have fetched £10,000 now fetches about £200,000 or perhaps even £250,000. In the same way newly produced works of art by modern painters now command relatively enormous sums. It is more appropriate that the public revenue should be augmented by tapping this immense source of wealth than by tapping the pockets of humbler people in the low income groups.

The right hon. and learned Gentleman referred to the plight of the art dealers, but one has to bear in mind that there tends to be at least a 100 per cent. markup on works of art purchased by dealers for resale to the general public. I would prefer the Treasury to tap this immense source of revenue and to use it for a more public purpose. I suggest that the Chanceller of the Exchequer would be well advised to give more consideration to our important Amendments than to this well-meant but nevertheless low priority Amendment.

Mr. William Clark (Surrey, East)

I hope that the hon. Member for Loughborough (Mr. Cronin) will forgive me if I do not follow his argument. He was suggesting that since everybody cannot have an old master we should not help the art market, but that is a fallacious argument. I broadly welcome the Amendment, as I welcome VAT. Because VAT is on a broad basis the rates will be lower.

The Amendment can be split into two parts, the part dealing with the contemporary living artist and the part dealing with the old master, and each part should be dealt with separately. To take first the so-called second-hand market—the old master—my right hon. Friend the Chancellor of the Exchequer in Clause 14 has power to make orders to give special relief to second-hand goods. Presumably, second-hand motor cars are covered by that provision. I cannot see the logic of giving benefit to second-hand motor cars and not giving the same benefit to works of art.

A dealer may buy a work of art for £1,000 and eventually sell it for £1,500. He may or may not have restored it. VAT on the whole £1,500 would be £150 and it would be a tax on something that is already in existence, so making the legislation retrospective. Why should one pay 10 per cent. on a picture that is already worth £1,000 when the whole philosophy of the VAT is that it is based on the value that is added? To be logical the tax should be paid only on the value that is added.

I fully appreciate the administrative difficulties here. A well-known work of art or piece of antique furniture can be traced back through the art world, but administration becomes more difficult when the work of art cannot be identified. It surely is not beyond the wit of the Treasury to work out a method by which relief could be given to the art world generally by exempting works of art up to a certain limit, say £100 or £200. Works of art of greater value, provided the art dealer keeps proper records, should be readily traceable.

The Amendment has brought out the disadvantage of the VAT to the contemporary artist. Why is a book or a piece of music zero-rated, whereas a picture, an etching or a sculpture is not? It is surely a ludicrous situation that books can be written—and much of the literature today is pornographic or silghtly so—and be zero-rated, whereas a work of art, which is a living thing and will last, receives no relief whatever and in fact is penalised.

My right hon. Friend will surely create many anomalies by leaving the situation about works of art as it is in the Bill. This will offend against the Conservative philosophy about not enacting retrospective legislation. If he gives relief he will prove not only that he is continuing to be logical but that he is raising taxes in a fair and just way.

Mr. Tam Dalyell (West Lothian)

I wish to raise three crisp points with the Chancellor. First, I wish to add my voice to the pleas of the right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith) and the hon. Member for Surrey, East (Mr. William Clark) on behalf of the living artist, be he sculptor or painter. This is surely a valid distinction. Although I would not care to go very far to assist those who are involved in deals in old masters, nevertheless surely living artists, whose financial problems are known to us all, are a special case. Therefore, is it not practicable that the first sale of a sculpture or painting should be zero-rated? 'This is an inexpensive proposition and it is also practicable

Secondly, there may be a case for dealing in a special way with violins and other musical instruments which are often used by professional people and where the cumulative effects mentioned by the right hon. and learned Gentleman in a slightly different context comes into operation. Since musical instruments are often used by those who cannot easily afford them, perhaps the Treasury could make an exemption, which again I am told would be practicable.

In an answer to a Question by the hon. Member for Bedford (Mr. Skeet) on 1st May, the Financial Secretary said: In France, value added tax does not apply to antiques and works of art sold at public auction sales, but such sales are liable to a special registration tax of 7 per cent. Other sales of work of art and antiques by dealers are liable to value added tax generally….".— [OFFICIAL REPORT, 1st May, 1972; Vol. 835. c.57] If the French can make that kind of distinction, surely such a concession should not be beyond us.

My third point involves a factual matter. There have been a number of representations—or "squeals ", according to taste—from the London art market, and in my case from the Edinburgh art market. I do not have sufficient information to make any kind of assessment. For example, is it the opinion of the Treasury that threats to move the sale of art from London to New York or the Continent are bogus, or is it considered that there is something in them? Some of us believe that this case is put forward quite genuinely. I am not saying that Sothebys is likely to move to New York, but this is the kind of rumour that is now going the rounds. The Committee will be grateful for some kind of sober assessment of what is likely to happen in the art market in the United States, in London and elsewhere when VAT is implemented.

5.15 p.m.

Sir Richard Thompson (Croydon, South)

I support the eloquent and reasoned plea of my right hon. and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith). I find it difficult to press my right hon. Friend the Chancellor of the Exchequer on anything in this Finance Bill because we are deeply indebted to him for taking more burdens off the backs of ordinary people than has any other Chancellor since the war. We are certainly most grateful to him for not only talking about reforming the tax structure, but for taking steps in legislation to do so. Therefore, it may seem that I am cavilling a little in urging on him a lengthy Amendment which involves some rethinking of the scope of VAT. Nevertheless, I urge him to think again on this topic.

I reject the plea of the hon. Member for Loughborough (Mr. Cronin), who seemed to regard the concern of hon. Members on both sides of the Committee in respect of art treasures as being aimed at feather-bedding the well-to-do. That is not our concern. We are concerned for our national collections and the store of national treasures in this country.

There are two aspects of the matter which I wish to emphasise. I hope my right hon. Friend will take seriously the threat implied in the Amendment. If he goes ahead with this provision he will be taking steps which will lead to the dispersal of our treasures away from this country because it will be cheaper to sell abroad than to deal here. We put such a high value on trying to keep our national heritage intact that we have a high-powered committee which looks into proposals to export from this country works of high quality which otherwise would go out freely to the highest bidder. It is surely ridiculous that we should now begin a process which will make it more attractive to sell our treasures abroad.

It has taken years to build up the London art market since the war. Although I agree that the situation will not be knocked to pieces by this legislation, we must remember that it is a world-based market and it could easily crumble and lose its reputation if we go ahead on these lines.

My other objection is on the grounds of practicality. Let us not create a tax which it is easy to circumvent, and so bring the law into contempt. My right hon. and learned Friend in moving the Amendment referred to the anomalies between taxable and non-taxable situations. If we go on in this way we shall find that many of the less reputable entrepreneurs on the fringe of the art market will find easy and ready ways to avoid the tax. We shall drive much legitimate trade completely underground and this will have the effect of making a large part of a reputable market black.

It is a little odd that although under arrangements which have existed for many years under the old purchase tax system second-hand items were exempt from tax here, we are now proposing to impose another form of tax on our art treasures. How can one possibly calculate the input of works of art? Their continuing value depends on the assumption that they are unique, not improved or added to in any way. This legislation invites a flood of transactions on a clandestine basis from which no tax can be extracted. Bearing in mind all the ingenuity in the Treasury, I do not believe that it is necessary to do things in this way.

My hon. and learned Friend suggested that the situation could be adjusted by taxing the margin in the hands of the dealer or something of the sort. I appreciate that this is a technical matter, but I hope that my right hon. Friend in his reply will give some ray of hope on whether he might agree to zero-rating in this respect. I feel that he should not bring in a tax which will have deleterious effects in the two respects I have submitted, and I urge him to look at this matter again.

The Chancellor of the Exchequer (Mr. Anthony Barber)

It may be helpful to the Committee if I intervene at this stage. There are certain misunderstandings about the way in which the tax will work and, indeed, about the way in which it should work.

First, I must tell my right hon. and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith) that long before the Finance Bill was published I considered with very great care the effect of value added tax on the British arts and antiques market. Certainly I am as aware as any of my right hon. and hon. Friends of the pre-eminent position which London has achieved.

I believe also that all of my right hon. and hon. Friends, if not all right hon. and hon. embers opposite, will agree that in the various matters of taxation with which we have been concerned I have always tried to adopt a reasonable approach when cases have been made.

Since the Bill was published and, therefore our intentions were made known to the public, I have looked at this matter again, and earlier this week I had the advantage of a discussion with representatives of Christies, Sotheby's, the Society of London Art Dealers and the British Antique Dealers Association. In what I say I have taken their points into account as well as those which have been adduced in this debate.

On a matter of fact perhaps I might refer to what happens in Luxembourg and France. It is always difficult to make direct comparisons with taxation systems overseas. But we do the best we can. Reference was made to Luxembourg by my right hon. and learned Friend. As far as we know in Luxembourg the standard rate of 10 per cent. applies to works of art and antiques. It was the hon. Member for West Lothian (Mr. Dalyell) who referred to France, and the hon. Gentleman read part of a Written Answer to my hon. Friend the Member for Bedford (Mr. Skeet) and suggested that we might do something of the same sort as is done in France. The Written Answer to my hon. Friend the Member for Bedford said: In France, value added tax does not apply to antiques and works of art sold at public auction sales, but such sales are liable to a special registration tax of 7 per cent. However, I think almost certainly there are no inputs allowed against the 7 per cent. and therefore the effective tax is higher than that. Secondly, in France, Other sales of works of art and antiques by dealers are liable to value added tax generally at the standard rate of 23 per cent. on the dealer's margin, with the optional alternative, in the case of works of art, of tax on 30 per cent. of the selling price."—[OFFICIAL REPORT, 1st May, 1972; Vol. 835, c. 57.] While these are relevant considerations, they are not the dominant ones which should be taken into account. The first point to make is the one referred to very fairly by my right hon. and learned Friend the Member for Hertfordshire, East and my hon. Friend the Member for Surrey, East (Mr. William Clark), namely that VAT, in its nature, is a comprehensive tax and that this is one of its great advantages. It means that the provisions for relief, apart from certain broad categories must be kept to an absolute minimum. My right hon. and learned Friend was right in saying that there are exceptions. He went on to say that. having put exceptions into Schedule 4, he could find no discernible logic. I am not sure that that applies to most of them. However that is my right hon. and learned Friend's view, and it may be a tenable view with regard to some of them.

The problem is that already the limited exemptions and zero-ratings which have been made for other special reasons are being cited now as special cases which themselves will give rise to anomalies. That is the great danger once one begins on this course. Therefore I start from the assumption that at least has the general support of this side of the Committee at any rate that, as far as reasonable, the tax should remain a comprehensive one.

For reasons which I shall explain, I must reluctantly advise the Committee against accepting the Amendment. However I believe, after further discussion, it may be possible to meet one of the main complaints made against the way in which VAT in practice will work in part of this field if no further action of any kind is taken.

First let me clear up one point raised by the hon. Member for West Lothian. He referred to the "Londoner's Diary" in theEvening Standard yesterdaywhich had a story that started with this paragraph: If the Government refuses to exempt the London art market from VAT, there is every indication that Sotheby's will transfer all their major sales to their New York auction rooms at Parke-Bernet. It is not for me to apportion responsibility for that report. But I should tell the Committee that quite unsolicited from me Mr. Wilson, the Chairman of Sothebys, telephoned my office last night to say quite simply that what had been written there was not the case. I think that it is right in the interests of the art market generally that I should make that known.

I want now to clear up one misconception because it is a matter of great importance. I say this especially because my hon. Friend the Member for Croydon, South (Sir R. Thompson) has a special responsibility for public museums and art galleries. It has been said that museums and art galleries in this country will have to pay tax and that this will put them in an unfavourable position compared with similar institutions overseas.

That argument is based on a misconception of how VAT works. Museums which charge for admission will become taxable persons. Therefore they will be able to deduct any valued added tax paid on their purchases of goods or services, including VAT on works of art that they buy. They will be able to deduct that from the tax that they pay on admission charges. More important, in any accounting period in which the tax on their purchases is greater than the tax on their receipts, Customs will pay the difference automatically.

Mr. Andrew Faulds (Smethwick)

What will be the situation if, as is now the likely eventuality, the proposed Museums and Galleries Admission Charges Act never sees the light of day?

Mr. Barber

I am sorry. I do not understand the hon. Gentleman's point.

Mr. Faulds

What will happen if admission charges are not introduced?

Mr. Barber

The museums and galleries will become taxable persons. Furthermore, because of this, VAT will not put up the cost of their acquisitions. For municipal institutions, special arrangements are proposed in Clause 15 to refund VAT paid in respect of the non-trading activities of local authorities. These provisions are of great importance. They mean that for these institutions the matter is already dealt with satisfactorily.

I come now to one of the main points raised by some of my right hon. and hon. Friends. There is one very real problem about the matters that we are discussing. With his usual graphic phraseology, my right hon. and learned Friend the Member for Hertfordshire, East referred to it as an endless revolving from hand to hand. It is true that many works of art and many antiques appear, within the foreseeable future, to have no final consumer. I discussed this problem with representatives of the trade on Tuesday. It is as well to explain how the problem arises in relation to VAT.

It is best, I think, to consider the sale and purchase of a picture. If nothing at all is done, there will be a sort of cascade effect whenever a dealer sells a picture which has borne VAT previously and has subsequently been sold back to a registered trader by an unregistered person.

Let me take a simple example. If a dealer, Mr. Agnew, sells a picture to a private person, Mr. Smith, VAT will be charged on the sale. If later Mr. Smith sells the picture to another dealer, Mr. Leggatt, no VAT will be payable because Mr. Smith is not in the business of selling pictures. But Mr. Leggatt will not be able to claim any input tax credit and, therefore, there will be some hidden tax in his purchase. If Mr. Leggatt then sells the picture to another private person VAT will be charged on the full price including the hidden tax and there will be an accumulation of tax, what my hon. Friend referred to as the cascade effect.

5.30 p.m.

I have asked Customs and Excise to have further discussions with the trade to ascertain to what extent it is possible to find a way round this, and I have asked, furthermore, that these discussions should take place urgently.

Under Clause 14 there is a power enabling the Treasury, by order, to introduce special schemes for taxing certain secondhand goods on dealers' margins instead of on the full value. This was referred to by my right hon. and learned Friend the Member for Hertfordshire, East, and my hon. Friend the Member for Surrey, East also pointed out that it seemed illogical that this treatment might be applied to secondhand cars if it was not even considered worthy of application to some of the matters with which we are concerned in the Amendment. If, together, we can evolve a satisfactory definition and a practicable scheme this provision could be applied to a specified range of items.

TheTimesleader the other day said:

The White Paper, especially in its Clause on secondhand goods, leaves a loophole through which the position could be corrected."

That may prove to be so, at any rate to some extent, so that if we can proceed in accordance with the Bill in this way it could provide a solution. I have asked that detailed discussions should take place urgently, and I hope that we can reach a satisfactory arrangement. With that assurance, I hope that my right hon. and learned Friend will seek leave to withdraw the Amendment.

Mr. Dalyell

Before the Chancellor sits down, may I put one point to him? Will he have discussions also about musical instruments?

Mr. Barber

I thought that when the hon. Gentleman referred to musical instruments he was referring to those which would probably come into the category of antiques. I shall look into the point.

Mr. Cronin

Before the Chancellor sits down—

The Second Deputy Chairman

Order. do not think that the Chancellor is giving way. He has concluded his speech.

Mr. Robert Sheldon(Ashton-under-Lyne)rose

Mr. Eric Deakins(Walthamstow, West)rose

The Second Deputy Chairman

Mr. Deakins.

Mr. Deakins

I hope that my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) will forgive me for intervening, but I do so because I do not think that the Chancellor has replied to the other main point made by the right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith) and the hon. Member for Croydon, South (Sir R. Thompson), namely, the effect of imposing VAT on works of art and their export from this country. Whatever our joint desire in this Committee to encourage exports, at virtually all costs, I should have thought that that was one export which the Committee would not want to encourage, since we cannot import goods of similar quality.

This country is one of the last in the Western World which still has a marvellous artistic heritage held in private hands, freely available for export, and any measures taken in this Bill or in any other legislation which further encourage the export of works of art cannot, by any stretch of the imagination, be held to be in the long-term national interest.

If the Chancellor cannot give an assurance about relief from VAT in the way that many Continental countries do, he should remember that although some Continental countries impose VAT on sales of works of art, almost without exception they have stringent rules which either prohibit, or make almost impossible, the export of works of art. We do not have similar rules here, and therefore we need additional protection.

If the payment of VAT on internal sales of works of art will enable the export of works of art to go ahead even faster, will he at least consider imposing VAT on the export of works of art so that at least they will bepari passéwith works of art sold internally?

Mr. Sheldon

It was interesting to note that the Chancellor, in trying to find some way of satisfying the Committee, had to look for a loophole in the Bill in his first week in Committee. If he is successful in finding a loophole in his own Bill, it may be that others will be able to take advantage of a not expertly drafted Measure.

One of the things that I notice—and this arises from the comments made by the hon. Member for Croydon, South (Sir R. Thompson)—is that operators on the fringe of the art market are likely to do very well as a result of the provisions that we are discussing.

Sir Harmar Nicholls (Peterborough)

The hon. Gentleman used the word "loophole ". If the Bill allows something to be done, that is a proper use of the Bill. I hope that the hon. Gentleman will not put a horrid meaning on the word. It is not a loophole in the derogatory sense of the word.

Hon. Members: Hear, hear.

Mr. Sheldon

I am interested to hear the roar of acclaim from the benches opposite on finding a loophole in the Bill. I should have thought that Bills should be drafted in such a way that loopholes were non-existent. If hon. Gentlemen opposite are proud of the achievement of their Chancellor of the Exchequer, I must leave them to enjoy their triumph.

I now turn to other matters mentioned by the hon. Member for Croydon, South. The entrepreneurs on the fringe of the art world will do very well out of this tax, whether or not it has the cascade effect that has been mentioned, and it will be difficult to find a way of stopping it. Even if it is applied at 10 per cent. it will be an important part of their costs and they will do very well if they find ways of evasion, and these are not difficult to discover. As we drive them underground, we must ask the Chancellor what means he will develop to find out who is profiting unduly by this tax reform. My right hon. Friend the Member for Leeds, East (Mr. Healey) referred recently to the decline in business morality that is likely to come about as a result of the introduction of a number of provisions in the Bill, and this is one such element.

Ever since the introduction of purchase tax there have been specific exemptions for original and unique works of art. Those are the words used in the regulations, and that is what particularly concerns me. Works of art were exempted from purchase tax because nobody wanted to tax artists in any way. Purchase Tax was not a profound instrument to assist artists but those who drafted it realised their duties and obligations in that respect.

The need to look after artists and make sure that they flourish in our society is not a demand that can easily be translated into popular form, but the realities of our civilisation demand that artists be encouraged in every possible way so that the consequences of their ideas and inspirations serve to effect the changes in our society which are so valuable to us all.

Lord Clark in his book "Civilisation" says: Writers and politicians may come out with all sorts of edifying sentiments but they are what is known as declarations of intent. If I had to say which was telling the truth about society, a speech by a Minister of Housing or the actual buildings put up in his name, I should believe the buildings. He was not thinking purely of the present Minister of Housing. The whole point of this is that at every period in our society we have respected the work of artists. It required this Government to demote their standing, and that is something which the whole Committee ought to deplore.

It is a pity that the Amendment is so widely drafted. A shorter, briefer Amendment referring to those forms of art which we should wish to encourage would have received wider support, and I am sure that in the light of the promises made by the Chancellor of the Exchequer we shall return to this on Report.

Mr. W. R. Rees-Davies (Isle of Thanet)

I will be brief and not tread the ground covered hitherto. I rise to draw my right hon. Friend's attention to two important points which deserve further thought from him.

First, I do not share the view of my right hon. and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith) that we shall not lose a large proportion of the delicate and finely balanced international art market as a result of the Government's proposal.

I speak as a modest collector of over 20 years' standing. Since the war I have frequented auction rooms and markets with great regularity. Although the Chancellor will not have been told this by the societies which he met earlier in the week, plans are already laid by firms —I could give him names—to move a substantial part of their business to New York, Switzerland and other countries. By this means a large proportion of their international dealings can be handled more effectively if the tax in this country is higher than that obtaining in Europe.

I accept entirely that Peter Wilson would have made, as one would expect from a person of such integrity, the statement which he made yesterday. It is reasonable and proper to draw the inference that within a short time New York and Switzerland will become the centre of the auction market.

This case is different from any other in seeking the attention of the Chancellor because this is the only case which concerns solely and entirely an international market. The international nature of this market means that it moves to those areas which are freer than others from regulations and taxation.

Many people come to this country and spend sums of money far greater than the Chancellor will gain from this tax. In tourism alone, the regular art dealers, who live here for weeks and months on end, spend considerable sums. They are part of an international body of men and women who place their business at the international centre from which they consider they get the best results, including freedom from regulations and taxation. They must take that view in their clients' interest.

If we introduce a 10 per cent. VAT in this sector there is little doubt that New York and Switzerland will becor e the main centres of the future. This is an argument about money and only money. That is the context in which I arg[...]e to it, rather than from the point of view of civilisation.

My second point flows from the [...]irst. One is dealing here in second-hand goods, and the work "junk" may be called to mind. These goods may pass through five, six or more hands and they are not all dealers. One may go to the Portobello Road, as I do every few weeks, or to any other market and buy something. One may then pass the object to a dealer who will in turn sell it to another person who is not a dealer. Thus, the course of dealing does not come within the ordinary run of dealing in goods. This is not a commercial transaction but a service which is being rendered.

It is essential to recognise that this is not the same as, for example, the debate on the theatre which we will have in due course. That may be a matter of great sympathy. One might argue in the same terms on behalf of surgical appliances. When one sells a carpet one is selling a commodity which has gone through a manufactured process.

On the other hand, when one deals in works of art—antiques, swords, sabres, old pictures and etchings—one is concerned with works which are not the products of living artists. In the main, there is a rapid turnover in these items and time and again one needs to secure the services and advice of the dealer. I invite my right hon. Friend to treat this issue on the basis of a service. In doing so one would have 10 per cent. of the commission, which it would be easy for the Treasury to assess. A general assessment would be given in respect of auction rooms and other sales.

5.45 p.m.

As for the living artist, if France can exempt him, then, bearing in mind that he is entitled to a £5,000 exemption anyway, who is going to collect any tax? Let us be practical about this. There is not a living artist in Britain who cannot go to another country and produce his work there, and so dodge the tax.

For the simple reason that the living artist will dodge the tax, one might as well say that he should be exempt. My right hon. Friend may consider that I have adduced bad reasons for exempting these cases, but they are good Treasury reasons. The fact that a tax cannot be collected is, from the Treasury's point of view, a good reason for not imposing it.

I urge my right hon. Friend also to bear in mind the nature of this business and the loss of the international art market, a finely balanced market which is dependent entirely on freedom. These reasons, rather than the attractive ones of civilisation, should compel my right hon. Friend radically to review this whole matter.

Mr. David Crouch (Canterbury)

Although the Committee is anxious to move on to other artistic matters, it cannot afford to pass over the problem of the living artist, let alone to do so faster than it dealt yesterday with the problem of fish and chips.

I should at the outset declare my interest in a London gallery. I live with a living artist, my wife, who struggles to keep me, and I am training my son and daughter as art students so that they may continue in that good work.

I thank my right hon. and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith) for raising this matter and for arguing his case so cogently. He has been persuasive in many causes in recent months and we realise the power of his argument and the genuineness of belief in his case.

Today my right hon. and learned Friend argued the case on two sides and we must consider each. One is the question of the dealer and the other is the question of the living artist. The case for the dealer in a country which is the centre of the world for art dealing cannot have been better put than by my right hon. and learned Friend and others, so that I need not develop their arguments. I will, therefore, concentrate on the problem of the living artist.

I was surprised to hear the hon. Member for Loughborough (Mr. Cronin) say he felt that art purchases were in the exclusive and limited hands of the rich. He could not have been further from the truth. Of course some rich men are major art purchasers, but there are equally a great many who scrimp and scrape to buy works of art from living artists. Often they pay very small sums, going on a hunch or belief in a certain artist.

Just such persons also buy books in the Charing Cross Road and are anxious to get first editions and so on. I am thinking particularly of the art purchaser of limited means who is probably denying himself certain other pleasures in our modern society, purchasing what he believes to be something of real and lasting value, not seeing it as an investment but as something which he will enjoy and which may enrich his life and that of his family.

The Chancellor has given a helpful answer and, as always, has shown that he is generous in being prepared to listen to arguments put before him here and elsewhere. I urge him to consider the fact that in Schedule 4 are detailed some works of art which will be zero-rated. As my right hon. and learned Friend the Member for Hertfordshire, East pointed out, books, including illustrated books and children's painting books, are in this category.

Where does the child go when he has developed from his painting book into an artist and subsequently begins to produce paintings, not from a book but from his complete and original conception? Should that new work of art come under taxation? For it to do so would be absolutely wrong, and I hope that the Government will not place a tax on works of art.

We should forget who purchases works of art and consider instead the person who produces them, the struggling artist. It costs a great deal today to become an artist, and the ability is not achieved in a short period of study. The art student must study at an art college for a long period before being able to offer his works for sale and before becoming recognised and able to command sales. Now he risks being penalised by a 10 per cent. tax. It is not an impossible tax or a terribly high tax, but it is morally wrong to tax art now. In so many other directions the Government and their predecessors showed an understanding of the arts and encouraged the arts through the Arts Council and in other ways. It is wrong to make the mistake now of placing a tax on a struggling artist who is seeking to contribute to our society, to humanity and to our civilisation.

Will the Chancellor please bear this in mind and not feel that it would be too difficult for him to apply zero-rating?

Mr. Patrick Cormack (Cannock)

I do not disagree with a word my hon. Friend has said. But it is important not to differentiate too strongly between living artists and works of art in general. A young mistress can be just as second-hand as an old master, if successful, and it is very important that we should tackle the whole problem.

Mr. Crouch

I agree with my hon. Friend and hope the Chancellor will take into account what he and I have said.

Sir D. Walker-Smith

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn

Mr. Sheldon

I beg to move Amendment No. 25, in page 98, line 4, at end insert:

7. Gramophone records.

The Second Deputy Chairman

It will be convenient to discuss with this Amendment, Amendments Nos. 89, in page 98, line 2, at end insert:

5A. Books, periodicals, journals and other publications printed in Braille or Moon type for the use of the blind.

5B. Sound records on magnetic tape or on other recording material for the reproduction of speech, specially adopted for the use of the blind and instruments specially designed for the reproduction of sound from such records.

No. 92, in page 98, line 4, at end insert:

7. Learning resource materials, being printed instructional materials and other consumable and non-consumable materials and equipment required for any educational purpose including physical education in a school or college.

No. 106, in page 98, line 4, at end add:

7. Micro-film reproductions of books, booklets, brochures, pamphlets and leaflets.

Mr. Sheldon

This Amendment has quite a lengthy history. We have discussed these matters for many years in Committee on Finance Bills, and the Amendment has been proposed by the Opposition to provide an opportunity to debate the matter again under the new system of VAT. We wish to point out an anomaly which exists along with all the other anomalies in the Bill with which we have become familiar. In the Schedule a number of items are zero-rated under Group 3 and it is difficult to understand why they have been chosen in preference to those we seek to include. Vast sums are spent to enable schools and various educational institutions seek to teach the appreciation of music. Here something appears to be wrong. At one stage in the life of the individual tax is raised in order to provide large sums to educate him. Later, instead of spending more money subsidising him we charge him money for exercising the appreciation he has acquired through his education. Something appears to be fundamentally wrong with this two-sided view. As a result of this I and my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett) have put down Amendments year after year.

This is not the only aspect of the problem. There is the direct educational approach. Modern languages are very largely taught by means of records and cassettes which come within the same category—

The Financial Secretary to the Treasury (Mr. Terence Higgins)

I was not quite clear what Amendment the hon. Member said he put down over the years.

Mr. Sheldon

It was an Amendment to reduce taxation on gramophone records. Large sums are spent on educating children in the use of modern languages—

Mr. Higgins

Did not the hon. Member vote in favour of increasing the tax on gramophone records on 8th May, 1968? Is this not shown in the OFFICIAL REPORT of Standing Committee A at col. 576?

Mr. Sheldon

The Financial Secretary also has a record on this where he has voted in one way and spoken in another. The purpose of the Amendment was to have a friendly exchange where we might both bare our souls. I have the Financial Secretary's quotations from that time also. I was not necessarily intending to use them but he now leaves me no alternative. He also said: We are signatories to a number of UNESCO conventions concerned with increasing the flow of books, gramophone records and similar articles across international boundaries. These treaties are concerned primarily with the removal of barriers to the free flow of information. Although I have had some help from the Library the position is still not entirely clear, but surely it is contrary to the spirit of these treaties that we should impose taxes of this sort, which are likely to increase the barriers to international exchange rather than to encourage general dissemination."—[OFFICIAL REPORT;Standing Committee A, 8th May. 1968. c. 476.] I concurred with that at the time. The pity is that the hon. Member is now the Financial Secretary and he has the power to make these changes. He has failed. I do not have the power but he does. We may both have voted in the past but that is a very different matter from bringing about the realisation of these objectives. He has the power over these matters and he has failed to exercise it, as is evidenced in the Bill.

Mr. Higgins

I am very happy to mix it with the hon. Member on this point. He may have concurred with my view, but he did not vote in favour of reducing the rate of tax on gramophone records. He voted in favour of increasing it. The Amendment I was then supporting was an Amendment not to eliminate the tax on gramophone records but to reduce it below the enormously high level to which the Government of the day were proposing to raise it. The proposals in the Bill reduce the tax even lower than the level I was advocating on that occasion.

Mr. Sheldon

These debates are always very interesting because we are always one step ahead of each other. I intended to come to that as my next point. I suspected that the Financial Secretary would have had that fact in mind. But the arguments he used then were the arguments that I have used now. This is a tax designed to increase the barriers to international exchange rather than to encourage general dissemination and that remains true in spite of the Financial Secretary's position in the Government, a position of some authority in which he might have brought about changes in the light of what he was saying in 1968.

6.0 p.m.

My local authority, for example, subsidises me in the availability of gramophone records. When I purchase a gramophone record from a shop, I shall have to pay tax. This absurd anomaly should be removed. However, I am not too much involved with this Amendment. The Amendment was tabled merely to draw the Committee's attention to the honourable past 1 of the Financial Secretary.

The more important Amendment is No. 89, which concerns sound records on magnetic tape for the use of the blind. These are records of any kind for the use of the blind. There is no element of luxury in these articles. They are as important as books. In fact, to the blind they are books; they are essential substitutes for books.

If any change is to be made in the Schedule arising from the Amendments which have been tabled by hon. Members, the case is strongly made out for this Amendment. The Financial Secretary said that he has tried to go for a non-discriminatory tax. The point about this tax is precisely that it is a discriminatory tax. It discriminates—rightly —in favour of food, water, builders, caravans and gold.

Had the Financial Secretary wanted a non-discriminatory tax, he could have told the Committee that he was introducing a non-discriminatory tax. There would have been a vast gulf between some hon. Members and some of his hon. Friends who want a broad based tax applying to every manufactured article and every service offered without any exemptions or zero-rating. Once the Financial Secretary considers the tax as applying to essentials such as gramophone records for the blind, he starts to discriminate.

If the Financial Secretary starts to discriminate, he must excuse the Committee if it is not wholly satisfied with the discrimination he has worked out to his satisfaction but not necessarily to the Committee's. We believe that these articles are of much greater importance than some of the others which the hon. Gentleman has decided should be zero-rated. However, I will not make comparisons. because I am not arguing against the zero-rating of such things as printed music and maps. I argue that zero-rating of sound records for the blind, which replace books, is of the highest importance; and the cost would be trivial.

The late Lain Macleod expounded his philosophy on this matter. It is a philosophy quite different from that which has been enunciated by the Financial Secretary, who has told the Committee that this tax is perfect, that no change can be allowed because the revenue would be inadequate, that it is useless to move Amendments because any Amendment would cause the whole tax system to crumble. The Financial Secretary heard the civil servants and the industrialists. He made up his own mind. He then came to the House of Commons. He should have been prepared to listen to the views of about 620 Members of Parliament and the arguments they present representing, not experts, but the interests of those they regularly meet.

The late Iain Macleod said this in Committee on the Finance Bill in 1968: Here we are asking for f1.2 million

The cost of Amendment No. 89 to zero-rate sound records on magnetic tape for the use of the blind would be a comparable figure, no doubt— and no conceivable argument on cost can possibly be put into the scale against the argument that we have put forward. But it goes further than this. The Committee should take careful note of this. If the Committee does not get this, then it will get nothing. If we fail on an issue which affects both sides of the Committee as deeply as this, with only £l.2 million involved out of a total of £923 million, what hope is there for any of the other Amendments on the Order Paper? "—[OFFICIAL REPORT,Standing Committee A,6th May, 1968; c. 327.]

The late Iain Macleod had many admirers on both sides of that Committee then and at all times. Those who were there on that occasion well know that. fain Macleod there stated the fundamental philosophy about 'the Committee on the Finance Bill—that it is not a place where experts meet; it is a place where experts are put in their place. It is a place where Members of Parliament representing ordinary people say that they have different priorities from those of the experts and that they should be allowed to have their say. I recalled that passage readily and was therefore able to turn it up quickly.

It was a great pity that the Financial Secretary, who was there on that occasion and on others when the late lain Macleod made similar points, did not remember the underlying fundamental truth therein—that a Minister should not come to the Committee on the Finance Bill and stand firm on a system of taxation which has been devised outside the House of Commons and then tell the Committee that it will have to swallow every bit of that system because superior judgments have been brought to bear. There is no superior judgment to that of the Committee and of the House of Commons.

If the Financial Secretary intends not to accept this any other Amendment, he will be contemptuous of this place in a manner that will ill become him.

[Sir STEPHEN MCADDENin the Chair]

Mr. James Mason (Hemel Hempstead)

I support Amendment No. 92, which seeks to secure zero-rating for learning resource materials. These are, broadly speaking, all those materials save books used in the course of education.

The hon. Member for Ashton-under-Lyne (Mr. Sheldon), speaking about g[...]amophone records, put forward the educational case and kept quiet about the entertainment aspect. I hope that the hon. Gentleman will support this Amendment rather than Amendment No. 25.

In general terms, the reason books are already zero-rated arises from the Government's unwillingness to impose a tax on education. However, the Government are imposing a tax on other items. What is the point of having books in a school if there are no notebooks to go with the books? Laboratory equipment in a school is just as important as the school library. All these items are used by teachers professionally. I ask that they be accorded the same treatment as books.

Under Clause 15, local authorities are able to recover the tax charged on these items. But this process has two objections. The first objection is that when the local authorities recover the tax there is no guarantee that the tax so recovered will be re-devoted to the original intention of providing this type of equipment in the schools. It may disappear into the general educational budget. This is the sort of item in the educational budget which is very much at the bottom of the list. Very little is spent on these things. We all know, however, how greatly schools benefit from better facilities, such as language laboratories, and we want to avoid discouraging their use by their being made more expensive.

The second objection is the discrimination against private education. If education is to be exempted in some way or another, the exemption should apply equally to both the public and the private sectors. Those who are struggling to provide their children with private education already feel strongly that they should have more consideration from the Chancellor because of the way in which they are relieving the burden on the public purse. The use of Clause 15, therefore, will not be an advantage to them.

Mr. Deakins

I cannot quite follow the hon. Gentleman's point about private education. Is not private education—regrettably in my opinion—exempt under Item 2 of Group 6 of Schedule 5, which covers education and the supply of goods and services incidental to education, provided that they are not supplied at a profit?

Mr. Allason

We are now getting very technical. I understand that there is a considerable difference between zero-rating and exemption, but I would hesitate to give a lecture on the difference. I understand, however, that zero-rating is more beneficial to the user than exemption is. No doubt the Government will reply that there would be a loss of revenue by the Amendment, but, since the local authorities will be able to recover their tax, the only net loss to the Treasury would be through the small private sector. I hope, therefore, that the argument of loss of revenue will not be used, because the Treasury should be thinking of the need for lack of discrimination rather than of taking a very small amount of money which it would otherwise lose.

Dr. Shirley Summerskill (Halifax)

I want to speak to Amendment No. 89, as there are 116,000 registered blind people in Great Britain and Northern Ireland. The Government can show whether they are capable of distinguishing a luxury from a necessity or the essential from the inessential. There is a danger when we are discussing so many Amendments as a group that those which are really essential are submerged by the less essential. It seems unjust that goods formerly exempt from purchase tax are now to be subject to value added tax. It is an anomaly that certain goods are to be zero-rated while others are not.

The Chancellor of the Exchequer has written to the Royal National Institute for the Blind telling it that the value added tax will get rid of selectivity, anomalies and distortions in the taxation system. But, as we have heard today, just as many anomalies and distortions seem to be created by VAT as are being got rid of—certainly as far as the blind are concerned. The needs of the blind lack the cultural and investment attractions of works of art; they lack the glamour of the live theatre, which has received such publicity in this connection; and they lack the humour of fish and chips, which has received similar excessive publicity.

6.15 p.m.

At present, gramophones, gramophone records and sound records for the reproduction of speech specially adapted for the use of the blind are specifically exempt from purchase tax. That is as it should be. The range involves also "talking books ", which are so essential to the life of every blind person. It is proposed in the Bill to zero-rate books—that is, books for the sighted—but no such benefit is provided for the books for the blind. It seems anomalous that those who can read with their eyes will benefit from zero-rating whereas those who can read only with their hands will be deprived of it.

Amendment No. 89 stands in the name of the hon. Member for Newbury (Mr. Astor), and I must confess that I wish he had spoken on it first. It specifically asks for zero-rating for books and journals in braille or moon type. Moon type is, I am told, a form of braille. That is an over-simplified explanation but it is enough of a definition for the purpose of this debate.

Mr. Higgins

I intervene in the hon. Lady's speech only in order that there should not be misunderstanding. I shall reply later to the main point she is raising. Braille books and so on are covered within the scope of zero-rating as it stands in the Schedule.

Dr. Summerskill

I am pleased to have that information and I am sure that the hon. Member for Newbury will be able to comment on it.

We have sound records on tape which are, in fact, talking books. Every blind person relies on them to a very large extent. Then we have ordinary gramophone records, but these have been dealt with in connection with Amendment No. 25 by my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon). These too play a part in the daily life of every blind person.

Yet the Chancellor has written to the Royal National Institute for the Blind saying that he cannot zero-rate these things because of problems of principle and practicability. But I am certain that blind people will not detect in that statement sufficient excuse or explanation for not zero-rating items which are essential to their everyday life. If they cannot have these things at all, or if they cannot have them in sufficient numbers or as often as they would like, they are penalised for being blind and are subject to immense hardship. I urge the Government to reconsider at least Amendment No. 89 even if they cannot reconsider their attitude to the other Amendments we have been discussing.

Mr. John Astor (Newbury)

I support Amendment No. 89 and shall do so briefly, partly because some of the arguments in its favour have already been made but also because the case is so convincing that I am certain my hon. Friend the Financial Secretary will very quickly see the justification for the Amendment.

I understand that it has always been the intention of my right hon. Friend the Chancellor of the Exchequer that reading matter, particularly educational but also recreational, should not be liable to bear any tax. As the hon. Lady the Member for Halifax (Dr. Summerskill) has pointed out, however, blind people cannot, of course, read ordinary books; they can read only by the use of such systems as braille or moon type or talking books.

I have been under the impression that without the Amendments all the equipment necessary to convert ordinary written material into a form in which it may be interpreted by the blind would be liable to VAT, but I was interested to hear the comments of my hon. Friend the Financial Secretary suggesting that braille type books are already exempt. Certainly the "talking books" will be liable to tax, and that is penalising the blind. If the principle is that reading material should be exempt, or zero-rated. for the sighted, it is equally vital that it should be zero-rated for the blind. We are not seeking special treatment for the blind. All we are seeking to ensure is that they enjoy the same benefits of education and, as near as they can, the reading ability of ordinary sighted people.

It is sometimes said that Amendments of this type may be subject to abuse. That could not be argued in this instance because the equipment listed is designed and adapted specifically to the needs of the blind and cannot be of benefit of ordinarily sighted people. I remind my hon. Friend that these items were specifically exempt from purchase tax and so the Amendment would not introduce a new principle.

I hope that my hon. Friend will be able to accept the Amendment so as to give fair treatment to the blind, or at least that he will give us a firm indication that he will examine the subject carefully to see whether he may make such a provision.

Mr. Austen Albu (Edmonton)

The Amendment in my name, No. 106, refers to microfilm reproduction. I have been engaged in discussion and correspondence with the Financial Secretary on this subject and it has made me believe that there is some misunderstanding about the nature of this material.

What we are discussing is a material which in use by customers and users is almost identical with the list of books and so on included in the Schedule as zero-rated. Especially after what I have heard this evening about the possible exemption of electronic material used by the blind, I feel that, as is so frequent, the Government and their advisers are some technological years behind the times. They do not realise that in future much of the material used in universities and by research workers, for instance, will no longer be printed on paper and bound in leather or cloth but will be found on reels of micro-film and used by micro readers. The younger members of the Committee may find before they die that most of what they are reading is in this form.

I have omitted to point out—this is the first time I have to do this—that I have a small personal interest in the matter in that I happen to be the chairman of a very small company likely to be involved in micro-film reproduction. This is the first time in nearly 25 years of membership of the House that I have had to declare an interest.

The logic of the matter is that in future it will not be possible to distinguish between books and periodicals and so on when printed and when microfilmed. From his letter to me, it seems that the Financial Secretary thinks that somehow these reproductions may be used for making reprints. That is not so. They are used by themselves and require special reading machines. Their development is proceeding very fast.

Nor would they be used only by a company registered for VAT as the Financial Secretary seemed to suggest. They will be used by research workers and students at universities and schools, which are not to be registered for the payment of VAT, by not only institutions but increasingly by individual scholars. In modern times there is absolutely no logic in separating printing material from micro-film material any more than there is any logic in separating braille or moon type for the use of the blind from electronic material used by the blind for exactly the same purpose. These are artefacts which are used for exactly the same purposes. If the Government think it right to zero-rate a whole lot of materials, for reasons with which the Committee would certainly agree, it is difficult to see why they should not also zero-rate types of artefacts which will take their place in future and which are already doing so.

Those are the arguments about which I feel strongly. As usual, their is a technological lag in understanding. Nothing new is being asked for. It is merely that the new methods of the reproduction of written material, as well as the old, should be included.

Mr. Higgins

It has been a wide-ranging debate on a collection of Amendments covering many items. Hon. Members have put their arguments with considerable cogency and brevity but it may be necessary for me to reply at slightly greater length, because in a sense the answers are more complicated than questions. Some of the arguments arising from the Amendments have been based on misunderstandings of precisely how the tax will work and I shall attempt to clarify the position.

The hon. Member for Ashton-under-Lyne (Mr. Sheldon) mentioned the need fox the scrutiny of the House of Commons. I am sure he does not believe—I hope he does not—that I would ever or in any circumstances be contemptuous of the House. What we have sought to do is by adequate preparation to produce a Bill for the consideration of the House, a Bill as good as we can make it. The steps that we have taken to achieve that have been generally welcomed, but the ultimate tribunal in these matters is of course the House and it is ultimately for the House to decide.

The hon. Lady the Member for Halifax (Dr. Summerskill) said that we were not distinguishing very well between luxuries and essentials. I believe she has not attended all the previous debates on the subject when it has been explained that the Government have argued that in the past attempts by Governments to distinguish in detail between luxuries and essentials have lamentably failed. One has only to see the items charged at the top rate of purchase tax now to see that that is so. What we need is a broadly based tax at a single rate with reliefs given only to blocks of expenditure generally conceded to be concerned with basic items, such as food and housing. That has been our approach. We are not seeking in that way to distinguish between luxuries and essentials.

I say that as a preliminary to turning to Amendment No. 25. The hon. Member for Ashton-under-Lyne explained that it deal with the taxation of gramophone records, a subject which we debated at great length in a Committee of the House of Commons on 8th May, 1968. It was a fascinating debate because we might actually have got an Opposition majority against the Government's proposal to increase the rate of tax from 27½ per cent. to 55 per cent. The only reason why we did not do so was that our proceedings were constantly interrupted by Divisions downstairs in the House and every time we had a Division downstairs somehow the enthusiasm of the Government's supporters for the Government rather than for the arguments they had been putting forward tended to increase.

6.30 p.m.

It was a memorable occasion and the hon. Gentleman was right to quote from my speeches. I do not wish to detract from what I said on that occasion or from the Amendment I was supporting. What I was arguing then was that the level of tax which the Government were imposing was far in excess of anything reasonable and that it discriminated against gramophone records. I was not arguing for the complete elimination of the tax on gramophone records, as the Amendment made clear.

Having come into Government, my right hon. Friend reduced that high rate of tax imposed by the previous Government to 45 per cent. in July, 1971, and then to 25 per cent. in the recent Budget.

The present rate of purchase tax is equivalent to something over 16 per cent. at retail level. The rate of VAT will be down to 10 per cent., so we have gone far beyond the Amendment I was supporting on that occasion. We can say that we have met the case made on that occasion even more handsomely than we were advocating then.

I do not think there is any strength in the argument used by the hon. Member for Ashton-under-Lyne. He referred to the UNESCO convention and quoted from a passage in my speech. Having made further inquiries—I said at the time that I was not sure about it—I find that that convention is concerned with international trade. We have moved in that direction because record exports would be zero-rated and to some extent previously SET entered into the cost of exports if they went through export houses. We are moving in the direction of the Florence Convention which started this. As for the import of records, in domestic taxation they will he charged at a lower rate than was previously the case, at a rate that has become progresively lower under the present Government.

I turn to the point made by the hon. Member for Halifax and my hon. Friend the Member for Newbury (Mr. Astor) about the blind. I repeat the point I made in my intervention during the hon. Lady's speech. The effect of Amendments Nos. 89 and 90 would be to zero-rate braille and moon-type books and periodicals for use by the blind and also sound records and tapes and instruments specially designed for their reproduction for the use of the blind. There are two separate categories here.

Dealing with the first category I confirm that the proposed relief for braille and moon books is unneccessary as they are already covered by the general items for books, newspapers and so on in Schedule 4, Group 3. I can put the minds of my hon. Friend and the hon. Lady at rest on that point. The second point dealing with the sound equipment and so on is much more difficult because once we start to draw a line other than in the broad case we have set out, we run into the problem of creating anomalies and the constant tendency, if a concession is made on one item, for someone else to say, for example, that there is a disabled category or some other category that qualifies. "How about the elderly who are lonely and who like to play gramophone records?", it may be asked.

There are I am sorry to say, a great number of difficulties about this and that is why my right hon. Friend has said that there are problems of principle and practicality. I would not want to make any commitment on this subject other than to say that between now and Report we will certainly bear in mind points that have been made by my hon. Friend and the hon. Lady.

I turn now to the point raised by the hon. Member for Edmonton (Mr. Albu) about micro-film. This is a rather more technological question. My understanding is that the micro-films are used to a considerable extent for the reproduction of books. When the hon. Gentleman first corresponded with me, my understanding was that that was what he was talking about. I do not think it is a question of the hon. Member or myself necessarily lagging behind technology. It would now appear that we are talking of two different parts of technology. As for the reproduction of books from these items, no tax should generally result because micro-films used for reproduction are likely to be used not by the final consumer but by the trade, and to the extent that they are taxed the particular firm will be able to charge that as input tax against the output tax it will be charged on its final product or else it will be zero-rated. Either way the tax will not fall in the way which might be popularly supposed.

Mr. Deakins

Is it quite clear that a university library or a museum which uses micro-film to store material to make room on its shelves for further material would not in any way be liable to VAT and that this would not interfere with the services provided to students and visitors making use of these facilities?

Mr. Higgins

I would like to look at that question in detail. It may depend on the status of the particular library. Perhaps I can write to the hon. Gentleman about it. I do not think that on what is a fairly technical point I want to give an answer off the cuff. If it is micro-film used for producing books, the normal workings of the VAT credit mechanism will be such that the tax is passed forward. If the final output is zero-rated the usual rules will apply.

I do not wish to raise any hopes about the second category because here we run into great problems. We run first into the problem to which the hon. Gentleman referred—these are micro-films for final consumption in some sense and therefore they would be looked at through a viewer. Were micro-film views to be given relief there would be real problems over other viewers which can be used for looking at holiday photographs, and away we go down one of those slippery slopes. I am not sure where we would end if we went down that one. If someone says "Here are micro-films which are really books ", is not a moving film much the same?

I deal now with the point raised by my hon. Friend the Member for Hemel Hempstead (Mr. Allason) who was concerned with learning resources materials. The effect of these Amendments would be to zero-rate all materials and equipment used for educational purposes including physical education in a school or college. There is a problem here. When looking at the educational aspect of this we were concerned about a proper definition of an educational establishment and of "school" or "college ". This was difficult to define. Certainly in the terms of my hon. Friend's Amendment it is far too vague.

It could, for example, include motoring schools and dancing academies. I gather that "college" has no precise meaning for draftsmen. We sought to go into the matter in greater detail and on that basis we have drafted the Clauses. As for the relief on educational equipment, the position is that educational supplies in the local authority sector would in effect be zero-rated by the proposals in Clause 15 under which the VAT on the non-business expenditure of local authorities would be refunded. In the private sector education will benefit to the extent that there is zero-rating of books, new buildings and new construction work and most food, fuel and fares, and the exemption of existing buildings, land and insurance will substantially reduce the burden of the tax on purchases. Therefore, in both areas we have made considerable progress along the lines to which my hon. Friend has referred.

There are, however, tremendous difficulties if we try to be more specific about the private sector on individual items because it includes sports equipment. If we were to give zero-rating to sports equipment for schools, I do not know how many tennis rackets would remain in the school. It might well be that the sale of tennis rackets would vastly increase. The same is true of sports equipment and dress of all kinds. My hon. Friend the Member for Hemel Hempstead referred to notebooks. If we were to zero-rate those for schools, it would be difficult to know what would happen to the notebooks. There are problems of policing and extending the exemption.

Mr. Allason

Does my hon. Friend agree that if the tennis rackets or notebooks disappeared from the schools, either they would have been stolen, in which case we could not deal with the matter taxwise, or they would have been sold by the school, in which case the school should be liable for VAT?

Mr. Higgins

I should have made the point earlier that if the schools were to sell the equipment—such as tennis rackets—the position would be very odd, because if the rackets were used in the school they would not be taxed; if they were sold to someone outside they would be. Although this may be a trivial example, it illustrates the problems which would arise. We have gone a long way to meeting the point about education.

I should try to clear up one other misapprehension. It has been argued that repayments on the educational supplies used by local authorities which get the sum refunded would not be used by the authorities for educational purposes but, as my hon. Friend suggested, would be used for general expenditure. Others have suggested that it would be used on items which were popular. But local authorities will plan their expenditure on education material knowing that they will be able to buy at, in effect, tax-free prices because they will be able to get the money back from the customers. Perhaps there has been some misunderstanding about how the refund mechanism works. The idea that there will be some distortion of the pattern of consumption is based on a misapprehension.

Since a number of the points which have been raised are covered in the Bill, I hope that the Committee will not feel it necessary to press the Amendments.

Mr. Dalyell

The Financial Secretary's answers were far more complicated than the questions put. I found what he had to say on the question of educational equipment relatively convincing; I would not quarrel with it. However, further thought should be given to the question of the blind. As my hon. Friend the Member for Halifax (Dr. Summerskill) said, it is a question of books for the sighted and books for the unsighted.

First, the Financial Secretary used the analogy of reliefs of large blocks. He said "We cannot do this because we must give reliefs by large blocks and categories ". The issue is the category into which we should put the so-called books for the blind. Is not this a question of which category we should put them in? I should not have thought that it would be too difficult to put them into another category. Why do they have to be in one particular category?

6.45 p.m.

Secondly, the Financial Secretary said that we have gone far beyond previous Amendments. That may well be true. However, all of us have blind constituents, and I do not think I am by any means alone in detecting over the last two or three years that the blind as a category, without self-pity—and I emphasise this—feel ill done by. Unless there are powerful considerations as to why they should not be helped, I should have thought that when many people were better off there was a case for overcoming the difficulties which the Financial Secretary has outlined. I hope we shall return to this point later.

Mr. Sheldon

We have had the glimmer of the first concession from the Financial Secretary. He has said that he will consider what he can do about sound records for the blind. I am very pleased to learn that there will be second thoughts on this point. We shall be reverting to it on Report. Therefore, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn

Mr. Joel Barnett

I beg to move Amendment No. 26, in page 98, leave out line 21.

This is a probing Amendment seeking information. We are curious to know why, if the supply to newspapers or to the public of information of a kind published in newspapers ". is zero-rated, the supply of photographs is excluded.

The Minister of State, Treasury (Mr. John Nott)

The object of the Amendment is to include photographs within zero-rating when they are supplied to newspapers. The proceeds from photographs when supplied to newspapers will be deductible under the credit mechanism. Therefore, there will be no charge on the part of the newspaper because the whole amount will be deductible under the credit mechanism as it is an input. I hope that this adequately answers the hon. Gentleman's point.

Mr. Barnett

In view of the Minister of State's reply, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Joel Barnett

I beg to move Amendment No. 82, in page 99, line 1, leave out from first "Supply" to first "of "in line 2.

The Temporary Chairman (Sir Stephen McAdden)

It will be convenient also to discuss Amendment No. 27, in page 99, leave out lines 6 to 8.

Mr. Barnett

We have heard the usual Government arguments for resisting Amendments although we seem to have made a little progress. We have had one almost firm concession, admittedly to Government back-bench Members, and almost a concession to consider before Report an Amendment which we moved. I hope that the Government are moving away from the rigid line of resisting Amendments—[Interruption.] I am sorry that the Financial Secretary is shaking his head. It seems that he is not moving from a rigid line. That is very strange in view of the conciliatory tone of his last reply.

The purpose of almost all our Amendments is to help the Government out of considerable difficulties. We tried last night to help the Minister of State on the small matter of fish and chips, although it is not a small matter to the millions of people who eat them. Similarly in this case we are seeking to help the Government because an appalling muddle arises from this group of zero-rated items.

If the Amendment is resisted it will not, as has been said about other Amendments, be better to leave the matter alone. That would add to the anomalies and, to use the Financial Secretary's memorable words, cause us to slide into further difficulties. I am sure he will be doing that regularly in the coming weeks in Committee upstairs.

The Amendment would improve the situation, as I hope to show. Item 2 in Group 7 states that The supply, in the course of construction, alteration "— that is a relevant word to which I shall return— or demolition of any building or of any civil engineering work, of any services other than the services of an architect, surveyor or any person acting as consultant or in a supervisory capacity", will be zero-rated. Item 3 refers specifically to Item 2, so the supply of materials or of builders' hardware, etc., would only be zero-rated if it were in connection with a supply of services falling within item 2". That will create considerable difficulties. How will the Customs and Excise interpret the difference between alteration, improvement and repair? I should be interested to know. The Inland Revenue will have difficulties in the submission of accounts and getting a distinction between whether they should be allowed as a revenue or a capital item. It will cause appalling difficulties.

One can imagine a man going to a builders merchant and asking for some materials from builders' hardware. The supplier will say to him "Are you going to construct, alter or demolish a building? If you are not going to do any of those things, I shall have to charge you VAT." Being an honest fellow, the man will reply "No. I am going to repair my house." If he says that, the merchant will have to say to him" I shall have to charge you VAT ". That is an example of a typical, honest person who buys from a builder's merchant.

It is just conceivable that that will not always apply. Some people will go to a builders' merchant and when told that the item they are buying will be free from VAT if they use it for altering premises, they will perhaps tell a white lie. Certainly the temptation for evasion will be immense. One would be reluctant to condemn someone for refusing to resist that temptation.

The wording of this group will create further enormous opportunities for massive evasion. The evasion will not only apply to the definition of "alteration ". In another instance, for supply to be zero-rated, the person carrying out the supply would have to find out the purpose for which it was required. That creates a ridiculous situation for the supplier. Why should he have this onus? Is he supposed to get a certificate from the customer saying "I am definitely and honestly going to construct, alter or demolish my house "?

The whole sphere of services under VAT creates great difficulties which, as we know, are occurring in Europe. An article inThe Observerof 7th May sums up to a considerable degree what is happening in Europe in the sphere of services. It states: Where the VAT levy is a sham and evasion is rife is in the service industries—and here detection is virtually impossible. The European plumber, electrician and handyman have a field day with VAT. If the European plumber has a field day with VAT, I cannot imagine that the British plumber will be very much behind the door. I am sure he will not need any teaching by his European counterpart.

The article continues: After the repair or installation is completed, the worker will put it to his customer: If you pay me cash now, there will be no VAT charge. If you insist on a cheque the transaction will have to go through the books and—regretfully—VAT will be included '. Given that sort of statement it would have to be a very honest man who would say "Please give me an invoice. I want to pay the VAT. I will give you a cheque ". That is most unlikely.

Apparently in Europe doctors are just as bad as carpenters. I do not see any hon. Members present who are members of that respected profession. I make no particular criticism of them.

The article goes on: At the end of a consultation in Belgium, Holland or France, the patient should not be surprised to be asked for cash or a cheque made out to the bearer. This ' black ' trading, as it is known in Holland, is a fact of life under VAT in which nearly everyone happily conspires. I should hope that the Financial Secretary would not want to conspire in putting on the Statute Book an Act which will encourage the evasion of tax in this way.

The Government are creating criminals out of people who do not want to be criminals. They want to obey the law, but the temptation to evade it, not avoid it, will be so great, as we have seen from the situation in Europe, that I doubt whether many will resist the temptation. I see you looking at me, Sir Stephen. I am sure you would resist any such temptation.

The difficulty about services is inherent in the Bill. If one is supplying goods rather than a service, even to a nontaxable person, it is less easy to evade as purchases of goods have to be included in the accounts for the purposes of input. The Customs and Excise will be able to check whether the purchases have been included. We know from the Financial Secretary—no doubt we shall revert to this on many occasions in the coming weeks—that there will be spot checks. There are to be spot checks on fish and chip shops, builders' merchants and presumably on people's homes to see whether the builders' materials were for construction, alteration, demolition or something else.

I hope that the Financial Secretary will accept the Amendment. The whole group creates more problems than we could hope to deal with. How is the supplier to know what the customer wants the materials for? If I say I am going to build a garden shed, how can the builders' merchant argue whether I am going to build a garden shed or do something else to that garden shed?

I imagine that the Financial Secretary will deal with item 3 in which we are told that a supply will be zero-rated if it is of a kind ordinarily installed by builders as fixtures". I do not know how "ordinarily" will be defined, because here we come into the whole sphere of that which has been referred to on Second Reading and in other debates. Would a fitted carpet, a fridge or furniture on a big scale put in by the builder of a house be zero-rated if done in this way?

As I read it, what is ordinarily installed now by builders could be something very different from what will be ordinarily installed in the future. If we are leaving it once again to the courts to define what is meant by "ordinarily ", I am afraid that what is now ordinary may be very different by the time the matter reaches the courts. Apart from that, one wonders what will happen to the furniture manufacturers when builders include all this vast amount of fitted wardrobes and the rest.

Great opportunities for changes in habit are being created by this group, so I hope I have made the case for what could be a major matter, creating a large number of new opportunities for evasion. That being so, I am sure that the Financial Secretary will treat the Amendment in his customary conciliatory manner.


7.0 p.m.

Mr. Deakins

My hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett) has put what is almost an unanswerable case to the Treasury Minister, and I want in a moment to refer to the absurdities which he mentioned.

With these two Amendments we are discussing the whole question of the construction, repair and maintenance of our housing stock. We, on this side of the Committee at least, know that housing is our biggest social problem and, of course, the Government have done very well to zero-rate the construction of new buildings. But what they are specifically not zero-rating is the repair and maintenance of our existing housing stock. One would think that the repair and maintenance of the existing housing stock, often consisting of very old houses, 50, 60, 80 or even 100 years old, was an absolutely vital principle which should not in any way be jeopardised by the imposition of any form of taxation such as the 10 per cent. value added tax.

A further dreadful consequence will flow if Amendment No. 27 is not accepted: the cost of repairs and maintenance will go up—that is what this tax is about. Two things then can happen. Either landlords will decide to defer, or not to implement, essential repairs and maintenance, which will lead to a more rapid deterioration of the housing stock, or, if they choose to undertake the work, the subsequent rent or service charge imposed on the person living in the house concerned will obviously be higher than it otherwise would have been, and that must further inflate the cost of living.

How is it possible for the Treasury or the Inland Revenue to distinguish between alteration and replacement? One can, for example, alter a fireplace by putting in a bigger or different type. That would probably be held to be an alteration. But if someone decides that he does not just want to alter the fireplace, but put in something both bigger and better, which I suppose would be a replacement, is that to be held to be an alteration and zero-rated, or is it to be held to be not an alteration and therefore subject to the tax?

Furthermore, how can one distinguish between an alteration and a repair? To use again y homely illustration, the dividing line between repairing and altering a fireplace is so tenuous that I should have thought that the Government would have made sure that there could be no doubt about which side of the dividing line such practices, which are very common, would fall.

Is it quite clear that people who do what is described as do-it-yourself work, which is very much the fashion nowadays with repairs, alterations, and the like, will be in no worse position than the builder or merchant operating in that line of business? If a person doing the work himself were to be in a worse position than the builder, it would be quite monstrous.

Mr. Dalyell

I am very conscious that it is comparatively easy to pour ridicule on many aspects of value added tax. It is a temptation I would not like to fall for, but there is an issue surrounding these spot checks. How are the spot checks to be carried out? Who is to do them? What amount of civil servants' time will be involved?

Another aspect is the amount of ill-will which could easily be generated. For instance, a newly married couple go into a house and there are marginal questions about fittings and the other matters to which my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett) referred. If someone comes to carry out a spot check one can imagine the reactions of that newly married couple to the somewhat searching and somewhat impertinent questions which are asked. Hon. Members may laugh, but those questions will be regarded as impertinent. As I said a moment ago, it is very easy to raise a laugh, but what happens is not quite so funny.

It also seems to me that we are setting up a lawyers' paradise. This is the experience on the Continent, and it is probably inevitable with any tax of this kind. But I want the Financial Secretary to tell me what serious consideration has been given to the nuts and bolts and mechanics of this proposition, and how these spot checks will be conducted. If I am making a mountain out of a molehill I expect the hon. Gentleman to tell me how and why.

Mr. Higgins

What has been said about the scope for evasion has been very much exaggerated. It was, I believe, virtually the only new point which the right hon. Gentleman the Member for Leeds, East (Mr. Healey) made when this Committee stage started. Otherwise, what he said was exactly what he said on Second Reading, except that he corrected a mistake he then made. He over-emphasised the scope for evasion, and this same overemphasis has occurred this afternoon.

If one looks at the newspaper reports which apparently were the source of the right hon. Gentleman's remarks, one finds that the reports themselves stressed that the general Continental experience has been that value added tax is a remarkably difficult tax to evade because of the fact that one man's output tax is another man's input tax—if that does not sound too much like a remark once attributed to the right hon. Gentleman the Leader of the Opposition. That being so, there is an element, and I do not wish to overstress it, of self-policing in the system.

The first point made by the hon. Member for Heywood and Royton (Mr. Joel Barnett) was based on a misconception. It is not really a question of the person selling the particular item asking, "What do you intend to do with it? ", and thinking that the customer does not want to ask for an invoice. If he is a taxable trader he will have a very real interest in asking for an invoice, because it is of use to him.

I will try to spell out precisely the procedure of the Clause, because I think the hon. Gentleman's arguments were based largely on a misconception. The effect of Schedule 4, Group 7, Item 3 is to zero-rate the supply, in connection with zero-rated services falling within Item 2 of materials or of builder's hardware, sanitary ware or other items of a kind which are ordinarily installed by builders as fixtures. This item deals with the supply, for example, by the builder of the bricks which he is laying, since Item 2 on its own would cover only the bricklaying, not the bricks. Only supplies made in connection with zero-rated services under Item 2 are zero-rated by this item.

Supplies made by a builder's merchant to a builder or to another taxable person, or to a private person, and supplies made in connection with taxable services would all be taxable. That is to say, if any of those people go to a builder's merchant they are all taxed. The materials in this context include bricks, cement, timber, piping and so on. The formula of builder's hardware, sanitary ware and other items which are ordinarily installed by builders as fixtures is based on a formula which has been used under purchase tax to exclude certain items from the scope of chargeable" furniture

What has happened is that we have used the definition which has proved to be workable for purchase tax, but for value added tax it will have a wider coverage since it will relieve items other than furniture.

On the other hand, whereas the purchase tax relief applied to the items concerned irrespective of the use to which they were put, the relief under VAT will apply only when the goods are supplied in connection with the construction services. Special items such as built-in refrigerators, washing machines and waste disposal units will not be relieved.

My point here—and I think it answers the point made by the hon. Member for Heywood and Royton—is that this is zero-rating the supply of goods which are used by someone supplying services which are zero-rated. If the builder's merchant is asked for the invoice, that goes into the stream of services which are themselves at the end of the day zero-rated. Therefore, I do not think that the difficulties with which the hon. Gentleman had some fun actually arise.

In so far as the firm is making supplies to someone who is within the scope of the tax it does not matter whether the materials are positively rated or zero-rated since the tax will be deducted by the purchaser. The only case where the positive rate rather than the zero-rate would affect building costs would be on direct supply to a private person.

I have set out the general background. The effect of the Amendments to zero-rate the supply in all circumstances of materials, builder's hardware, and so forth, would be to exclude from the scope of the tax a large number of items which might be bought from builder's merchants and not go into the stream of zero-rated services to which I have referred. This would cost about £45 million a year. As the hon. Gentleman will appreciate, we are seeking to broaden and not to narrow the tax base and, therefore, this is a point which we have borne in mind.

The hon. Member for Walthamstow, West (Mr. Deakins) addressed himself to Amendment No. 27, which has the effect of zero-rating the repair and maintenance of any building or civil engineering work, sub-contractors' services and so on. The difficulty here is that repairs and maintenance shade into decoration, which accounts for a large amount of consumers' expenditure, much of which could be regarded as discretionary. Therefore, it seemed right to us in what is regarded as a comprehensive tax that these items should fall within its scope.

7.15 p.m.

The Government's proposals will relieve much improvement work, but on essential repair work, for which the Opposition presumably want relief, we ran into the great definitional problem of what is essential repair work and what is not. They have not in this context sought to put forward a definition. There is a problem between repair work on the one hand and improvement on the other, but that is a distinction which is well known for Inland Revenue purposes. It has worked in the past and we believe it will be effective.

The revenue cost of zero-rating repairs and maintenance, including the materials supplied from contractors, would be about £50 to £60 million. The Committee will appreciate that these two Amendments involve substantial sums, sums which I think the Committee is gradually beginning to appreciate, if the Amendments were accepted, would mean raising the standard rate above the 10 per cent. level which has been generally accepted and widely welcomed.

We are in the same position as we are in with many other Amendments. If we were to accept these Amendments the burden on one section would be relieved, but the burden overall would be raised and the standard rate would have to be increased. Therefore, for the reasons I have set out, we do not feel that we should accept the Amendments—

Mr. Dalyell

The hon. Gentleman has not answered my question about the spot checks.

Mr. Higgins

The spot check question raised in this context, not necessarily in other contexts, arises from the same misconception which the hon. Member for Heywood and Royton showed in his opening remarks. I think I have cleared up that point, so the question does not arise.

Mr. Carter

Many of the services to which the Minister has referred which will attract a positive VAT rate will be provided by self-employed persons. The Inland Revenue authorities in the past have experienced enormous difficulty with self-employed persons. With self-employed persons providing a wide range of services, what steps is the Minister taking to ensure that they will pay this positive rate of tax?

Mr. Joel Barnett

The trouble with the Minister's reply is that he is confusing what is in the Bill with what he knows is in the draft regulations which we have not had an opportunity to see. Neither have we been privy to the discussions which the Minister has had with industry. At the beginning of his remarks the Minister said that I had exaggerated, but at the end of his remarks he admitted that it was impossible to define—

Mr. Higgins


Mr. Barnett

The Minister conceded the whole case at the end. He said that it was a case of self-deception on my part. If there is any self-deception, it is on the part of the Minister and his advisers who think that people engaged in the service industries will not evade the tax as they are evading it in Europe. If the Minister really thinks that, he is in for a rude awakening if and when the tax is introduced.

The Minister is right that with a sale from one taxable person to another the incentive is for the purchaser to want an invoice because it will be allowed as an input. If a plumber is selling to a nontaxable person he will not have to supply an invoice because I assume that the non-taxable person's purchases will not be checked—although he could be subject to spot checks. A person supplying the services knows that there will be no check on his sales. The temptation for him to try to get his purchases without an input will be very great. It is a different sort of situation, the opportunities will be very great and, if there is any misconception, it is a misconception on the part of the hon. Gentleman I advise my right hon. and hon. Friends to support the Amendment.

Mr. Higgins

Perhaps I may come back to the point made by the hon. Member for Heywood and Royton (Mr. Joel Barnett). His argument is that if a plumber buys from a builder's merchant, then on the one hand he will not try to charge tax to the person for whom he is carrying out the service, and on the other hand he will try to get the goods for the person concerned without paying tax. This moves the argument one stage up the chain. It will mean that the builder's merchant will not be charged the output tax and will not get back the input tax. There is therefore no incentive of the kind the hon. Gentleman has mentioned. It may be that a number of people of the kind he has in mind are the sort of people mentioned by the hon. Member for Birmingham, Northfield (Mr. Carter), that is to say the man who is in business in a small way. Some of these are likely to be outside the scope of the tax because they will be exempt traders below the £5,000 taxable limit.

Question put, That the Amendment be made:—

Division No. 177.] AYES [7.23 p.m.
Archer, Peter (Rowley Regis) Harrison, Walter (Wakefield) Moyle, Roland
Atkinson, Norman Hart, Rt. Hn. Judith Mulley, Rt. Hn. Frederick
Barnett, Guy (Greenwich) Healey, Rt. Hn. Denis Oswald, Thomas
Barnett, Joel (Heywood and Royton) Horam, John Pannell, Rt. Hn. Charles
Bidwell, Sydney Hughes, Mark (Durham) Pardoe, John
Blenkinsop, Arthur Hunter, Adam Pendry, Tom
Booth, Albert Jay, Rt. Hn. Douglas Perry, Ernest G.
Bradley, Tom Jenkins, Hugh (Putney) Prentice, Rt. Hn. Reg.
Broughton, Sir Alfred John, Brynmor Price, William (Rugby)
Campbell, I. (Dunbartonshire, W.) Johnson, James (K'ston-on-Hull, W.) Reed, D. (Sedgefield)
Carter, Ray (Birmingham, Northfield) Johnston, Russell (Inverness) Rees, Merlyn (Leeds, S.)
Concannon, J. D. Jones, Barry (Flint, E.) Rodgers, William (Stockton-on-Tees)
Conlan, Bernard Jones, Dan (Burnley) Ross, Rt. Hn. William (Kilmarnock)
Cox, Thomas (Wandsworth, C.) Jones,Rt.Hn.Sir Elwyn(W.Ham,S.) Sheldon, Robert (Ashton-under-Lyne)
Cunningham, G. (Islington, S.W.) Kaufman, Gerald Short,Rt.Hn.Edward(N'c'tle-u-Tyne)
Dalyell, Tam Kelley, Richard Sillars, James
Davidson, Arthur Kerr, Russell Silverman, Julius
Davis, Clinton (Hackney, C.) Lamborn, Harry Skinner, Dennis
Davis, Terry (Bromsgrove) Lamond, James Small, William
Deakins, Eric Latham, Arthur Spearing, Nigel
Dell, Rt. Hn. Edmund Lawson, George Spriggs, Leslie
Dormand, J. D. Leonard, Dick Stallard, A. W.
Edwards, Robert (Bilston) Lipton, Marcus Stewart, Donald (Western Isles)
Ellis, Tom Lyon, Alexander W. (York) Stoddart, David (Swindon)
English, Michael Mabon, Dr. J. Dickson Strang, Gavin
Evans, Fred McCartney, Hugh Urwin, T. W.
Ewing, Henry McGuire, Michael Walden, Brian (B'm'ham, All Saints)
Fisher,Mrs. Doris(B'ham,Ladywood) Mackenzie, Gregor Walker, Harold (Doncaster)
Fitch, Alan (Wigan) McMillan, Tom (Glasgow, C.) Weitzman, David
Fitt, Gerard (Belfast, W.) Marsden, F. Wellbeloved, James
Fletcher, Raymond (Ilkeston) Meacher, Michael Wells, William (Walsall, N.)
Garrett, W. E. Mellish, Rt. Hn. Robert White, James (Glasgow, Pollok)
Gilbert, Dr. John Mendelson, John Whitehead. Phillip
Golding, John Millan, Bruce Whitlock, William
Grant, George (Morpeth) Miller, Dr. M. S. Wilson, Alexander (Hamilton)
Grant, John D. (Islington, E.) Milne, Edward Wilson, Rt. Hn. Harold (Huyton)
Griffiths, Will (Exchange) Molloy, William
Hamilton, William (Fife, W.) Morgan, Elystan (Cardiganshire) TELLERS FOR THE AYES:
Hamling, William Morris, Alfred (Wythenshawe) Mr. Ernest Armstrong and
Hardy, Peter Morris, Charles R. (Openshaw) Mr. Joseph Harper.
Adley, Robert Eyre, Reginald Kellett-Bowman, Mrs. Elaine
Allason, James (Hemel Hempstead) Fenner, Mrs. Peggy Kershaw, Anthony
Astor, John Fidler, Michael King, Evelyn (Dorset, S.)
Atkins, Humphrey Finsberg, Geoffrey (Hampstead) King, Tom (Bridgwater)
Barber, Rt. Hn. Anthony Fisher, Nigel (Surbiton) Kinsey, J. R.
Batsford, Brian Fookes, Miss Janet Kitson, Timothy
Bennett, Dr. Reginald (Gosport) Foster, Sir John Knight, Mrs. Jill
Bitten, John Fowler, Norman Knox, David
Biggs-Davison, John Fox, Marcus Lamont, Norman
Blaker, Peter Fry, Peter Lane, David
Boardman, Tom (Leicester, S.W.) Gardner, Edward Legge-Bourke, Sir Harry
Body, Richard Goodhew, Victor Le Marchant, Spencer
Boscawen, Robert Gorst, John Lewis, Kenneth (Rutland)
Bowden, Andrew Grant, Anthony (Harrow, C.) Loveridge, John
Bray, Ronald Green, Alan McCrindle, R. A.
Chapman, Sydney Grylls, Michael McNair-Wilson, Patrick(New Forest)
Chataway, Rt. Hn. Christopher Hall, John (Wycombe) Madel, David
Churchill, W. S. Hannam, John (Exeter) Marten, Neil
Clark, William (Surrey, E.) Haselhurst, Alan Mather, Carol
Clarke, Kenneth (Rushcliffe) Hawkins, Paul Maude, Angus
Clegg, Walter Hayhoe, Barney Maxwell-Hyslop, R. J.
Corfield, Rt. Hn. Frederick Heath, Rt. Hn. Edward Meyer, Sir Anthony
Cormack, Patrick Higgins, Terence L. Mitchell, David (Basingstoke)
Costain, A. P. Hill, James (Southampton, Test) Moate, Roger
Critchley, Julian Holland, Philip Monks, Mrs. Connie
Crouch, David Holt, Miss Mary Montgomery, Fergus
Crowder, F. P. Hornsby-Smith,Rt.Hn.Dame Patricia More, Jasper
d'Avigdor-Goldsmid,Maj.-Gen. James Howell, David (Guildford) Morrison, Charles
Dean, Paul Howell, Ralph (Norfolk, N.) Mudd, David
Deedes, Rt. Hn. W. F. Hunt, John Nabarro, Sir Gerald
Digby, Simon Wingfield Hutchison, Michael Clark Neave, Airey
Dixon, Piers James, David Nicholls, Sir Harmar
Elliot, Capt. Walter (Carshalton) Jenkin, Patrick (Woodford) Nott, John
Emery, Peter Jopiing, Michael Onslow, Cranley

The Committee divided: Ayes 116. Noes 137.

Owen, Idris (Stockport, N.) Simeons, Charles Ward, Dame Irene
Parkinson, Cecil Soref, Harold Warren, Kenneth
Pike, Miss Mervyn Speed, Keith Weatherill, Bernard
Powell, Rt. Hn. J. Enoch Spence, John Wells, John (Maidstone)
Pym, Rt. Hn. Francis Stanbrook, Ivor White, Roger (Gravesend)
Raison, Timothy Sutcliffe, John Wilkinson, John
Redmond, Robert Taylor, Frank (Moss Side) Winterton, Nicholas
Reed, Laurance (Bolton, E.) Tebbit, Norman Woodhouse, Hn. Christopher
Rees, Peter (Dover) Thatcher, Rt. Hn. Mrs. Margaret Woodnutt, Mark
Rost, Peter Trew, Peter
Russell, Sir Ronald Tugendhat, Christopher TELLERS FOR THE NOES.
Scott, Nicholas Walder, David (Clitheroe) Mr. Tim Fortescue and
Shaw, Michael (Sc'b'gh & Whitby) Walker-Smith, Rt. Hn. Sir Derek Mr. John Stradling Thomas
Shelton, William (Clapham)

Question accordingly negatived.

[Mr. RICHARD CRAWSHAWin the Chair]

7.30 p.m.

Dr. John Gilbert (Dudley)

I beg to move Amendment No. 28, in page 100, leave out lines 15 and 16 and insert not '.

The Temporary Chairman

With this Amendment we are considering Amendment No. 75, in line 16, after tons ' insert: ' (other than a ship designed for use in lifeboat service)', and Amendment No. 76, in line 45, after ' 1952 ', insert: ' and "lifeboat service" has the same meaning as in the Merchant Shipping Act 1894'.

Dr. Gilbert

This Amendment is intended mainly to discover exactly what the Government have in mind. At the moment it is not clear to this side of the Committee. The Amendment has the effect of removing paragraph (a) from Item No. 1 in Group 9, and it would extend zero-rating to ships of a gross tonnage of less than 15 tons.

We are not sure what types of vessel fall in this category that the Government seek to bring under the VAT system. Obviously they are important enough for the Chancellor of the Exchequer to deem it necessary to exclude them as a separate category in the Bill. However, we note that further down in Group 9 under Items Nos. 6 and 7 piloting services and salvage or towage services are also to be zero-rated. There seems to be very little in the way of shipping under 15 tons that would not be comprehended in those two items. All that I can bring to mind is a Thames barge or a lighter. I do not know whether that is what the Chancellor of the Exchequer has in mind in making this exclusion.

Mr. James Johnson (Kingston upon Hull, West)

Or a lifeboat.

Dr. Gilbert

Yes. I shall deal with lifeboats in a moment.

If it is a Thames barge, the question arises whether it is a ship or a boat. I recall from my nautical days that a boat is a vessel that is put on a ship, rather than the other way round. Clearly that is not what the Chancellor of the Exchequer has in mind.

It is also clear from paragraph (b) of Item No. 1 that a large pleasure yacht will be subject to VAT. The paragraph refers to: a ship designed or adapted for use for recreation or pleasure. This being an exclusion, the intention of the paragraph is to tax yachts of that sort. The paragraph refers to "a ship ", but presumably it means to include boats. But again the Bill is loosely worded on that point. Paragraph (b) clearly needs further clarification, although the words are apparently unambiguous. Presumably the paragraph would cover a cruise liner. What is a cruise liner designed or adapted for if it is not for recreation or pleasure? That can hardly be the right hon. Gentleman's intention. He cannot mean to exclude this one category of ship from the benefits of zero-rating. However, there is nothing in Item No. 1 to exclude ships operating for profit, and it would be easy to put in a phrase to that effect if that was what the Government had in mind. I assume that that is what they have in mind, but it does not appear in Item No. 1.

I turn briefly to Amendments Nos. 75 and 76. I have great sympathy with the spirit behind them and I shall be surprised if the Government do not share those sentiments. They are designed to give the benefit of zero-rating to the lifeboat service. I can say nothing that would add one iota to the stature and gallantry of those men who give their time and efforts to the service. I can see no reason for not relieving activities of this sort from tax. However, it may be that a more appropriate way of dealing with the problem will be to amend Clause 15. I hope that the Government will accept the principle. If they do not, I am sure that my right hon. and hon. Friends will divide the Committee against them when we come to consider Clause 15.

If we are to zero-rate, under Items Nos. 6 and 7 of Group 9, pilotage services and salvage or towing services, it is quite preposterous not to zero-rate lifeboats. After all, those engaged in salvage activities do so after storms are over in order to get the pickings, with far less risk to themselves. Those engaged in the lifeboat service risk their lives when the danger is worse in order to save human lives.

I hope that the Chancellor of the Exchequer will agree that, if this is not the appropriate place to make an Amendment along these lines, he will accept an Amendment in the same spirit when we consider Clause 15.

Mr. Richard Luce (Arundel and Shoreham)

I wish to speak briefly to Amendments Nos. 75 and 76. As the hon. Member for Dudley (Dr. Gilbert) pointed out, they are slightly different in substance from Amendment No. 28.

The purpose of these two Amendments is to provide zero-rating for all lifeboats and not just for those which are over the gross tonnage of 15 tons. The Royal National Life-Boat Institution has a fleet of approximately 300 lifeboats of which 244 are active and 56 are in reserve. The important point here is that 177 of them are under 15 tons. In other words, the majority will be subject to VAT as the Schedule stands. I understand that the trend is towards smaller and faster lifeboats so that the problem may well become even more acute.

The RNLI estimates that the effect of this Measure will be the payment of £108,000 per annum in VAT compared with about £51,000 per annum that it pays at the moment in purchase tax. It is a serious anomaly that lifeboats over 15 gross tons should be exempted, while those under that weight should be subject to this tax. It seems strange and illogical that pilotage services and salvage or towage services are zero-rated, but lifeboats are not.

The main factor to bear in mind is the need for the Government to give every encouragement to the lifeboat business. I understand that in 1971 the total number of emergency calls made upon the RNLI was 2,676 and that the number of lives saved was 1,439, that to date in 1972 the number of lives saved is 243.

We all know of the enormous courage and bravery shown by those involved in the lifeboat service. Next week the RNLI will be making a presentation of bronze medals to those who, in the last few years, have undertaken acts of enormous courage. The list includes a constituent of mine from Shoreham, and the citation reads: On the 19th October, 1971, the Shoreham Harbour life-boat Dorothy and Philip Constant' rescued five men suffering from exhaustion and seasickness from the drilling rig William Allpress '. In torrential rain, heavy spray and a strong south-westerly gale, Coxswain John Fox brought the life-boat starboard on to the rig enabling the survivors to be pulled on board across the foredeck. That is one illustration of the courage displayed by these men.

It would be wrong of any Government to penalise those who are trying to save the lives of others, and I hope very much that my hon. Friend will accept the Amendments.

Mr. James Johnson

In the shortest of interventions may I call attention to the fact that there are present in the Chamber two Members with fishing ports in their constituencies. I happen to have a deep-sea fishing fleet in Hull, while luckily for those who are asking for help there is present today on the Treasury Bench the hon. Member for St. Ives (Mr. Nott) who has an inshore fishing fleet. The deep sea men go as far afield as Iceland and elsewhere, and whether there are Icelandic lifeboats or not, we need our lifeboat men to look after us.

I do not intend to invoke logic, figures or sentiment. It is impossible for me as the hon. Member representing part of the Port of Hull not to make this intervention. I ask the Government to pay attention to the arguments that have been advanced in support of Amendment No. 75.

During debates on past Finance Bills the Minister and I have joined forces and spoken on behalf of our fishermen, be they deep sea or inshore. I must make that point, and I do so, not with emotion, but with the deepest feeling and confidence that we shall get some action by the Government on behalf of vessels of less than 15 tons.

Captain Walter Elliot (Carshalton)

I support what has been said about inshore fishing boats. This group is transport, and I presume that ships listed are zero-rated in order to control costs. This is important for the inshore fishing fleet and the inshore fishing industry as a whole. As the hon. Member for Kingston upon Hull, West (Mr. James Johnson) said, this argument should appeal to the Minister of State, my hon. Friend the Member for St. Ives (Mr. Nott).

This is an important industry, not only for employment purposes but for the type of employment that it provides. It often employs one or two members of a family and the industry is a great asset to the country in the provision of fresh fish. Many boats in the industry have a gross tonnage of less than 15 tons. I assume that fish are zero-rated as food. It does not seem logical that boats, their maintenance and purchase should be subject to tax, and that fish should be free of the tax.

Quite apart from that, I re-emphasise the importance of the industry for the employment and the type of employment that it provides and the fact that it is a great asset in providing healthy fresh food for this country.

7.45 p.m.

Mr. James Lamond (Oldham, East)

I added my name to Amendments Nos. 75 and 76 because of my great regard for the work of the Royal National Life-Boat Institution. These Amendments deal with a much narrower point than that dealt with in Amendment No. 28, and I share the hope which has been expressed by my hon. Friend the Member for Dudley (Dr. Gilbert) that if the Government are not prepared to accept the Amendments they will at least take the points that have been made by hon. Members on both sides of the Committee on behalf of this famous and important institution and realise that there is a grave omission in the Bill as it stands.

This is the 149th year of the Institution. It has done tremendous work during the whole of that time, and its work is increasing year by year. We have been told of the number of lives saved by life-boatmen in 1971. The figure is more than 1,400, and I think that that is probably more than anyone who has not taken an interest in the Institution realises. Surely we in this Committee must do all that we can to encourage this valuable work.

There can be only one possible argument against accepting these Amendments, and that is that if one is honest and examines the balance sheet of the Institution one finds that because of the work that it does and the recognition that it receives throughout the community it benefits considerably from subscriptions and legacies. Its report for 1970—which was the only one that I could find in the Library—shows that there was a surplus in 1970 of more than £246,000, in a balance sheet involving about £2¼ million.

The Treasury may think that because of that surplus there is no need to accept the Amendments, but I must point out that there is a table in the report which shows the position over a period of five years. One learns from that table that during those years there have been deficits of as much as £400,000. Over the five years there is a net deficit of £91,000, or an average of just over £18,000 a year. There is clearly a need for us to give as much assistance as possible to the RNLI.

The Institution has said that of its 300 lifeboats, 177 are under 15 tons gross tonnage and will therefore be caught by the Clause if it is not amended. The Treasury should gracefully acknowledge the strong feeling on both sides of the Committee in favour of the Amendments.

Mr. Andrew Bowden (Brighton, Kemptown)

I support the remarks of my hon. Friend the Member far Arundel and Shoreham (Mr. Luce) in the context that we both represent constituencies with a significant amount of coastline and a substantial number of inshore fishermen, many of whom reside in the Brighton area and generally in the County Borough of Brighton.

The public is always generous in contributing to the Royal National Life-Boat Institution for two reasons; first, because there is enormous respect for men who risk their lives, largely in a voluntary capacity, to go out in all weathers at all times to help those in danger, and, second, because of the recognition that this is a vital service which over the years has saved many scores of lives.

In my constituency we are in the process of building a massive marina. It will be one of the largest in the world and will obviously increase the number of craft of all types off the Sussex coast between, say, Eastbourne and Worthing. It is inevitable that many of these weekend seamen will get into difficulty and will need prompt help, particularly bearing in mind some of the squalls and nasty weather conditions that arise quickly off the Sussex coast.

I cannot believe that the Minister, who represents St. Ives, wants any sort of tax on lifeboats or that he is not aware of, for example, the fact that over 100 inflatable craft are used as lifeboats and operate mainly from the beaches. These numbers are likely to increase and I await with interest and anticipation the Minister saying that there will be no tax on this major and vital effort of saving human life.

Mr. Nott

When moving the Amendment the hon. Member for Dudley (Dr. Gilbert) saw a number of mysteries in Group 9 of Schedule 4. I assure him that he need not have any worries on that score.

I come straight away to the question of the need for a weight limit in the Bill. The purpose of the weight limit of 15 tons is to reconcile two objectives. The first is to relieve shipping operators of any financial burden, while at the same time taxing consumers' expenditure for recreation or for pleasure purposes. [Interruption.] I hear hon. Members murmuring the word "boats ". There is no special term of art in the distinction between the words "ships" and "boats ". Hon. Members need not worry on this score, either.

In trying to achieve these twin objectives—of relieving shipping operators from the financial burden of SET—[HoN. MEMBERS: "SET? "]—I apologise; I should have said VAT and taxing con—sumer expenditure for recreation purposes —we found it necessary for administrative reasons to include the limit of 15 tons.

This limit of 15 tons gross for ships was a good dividing point to take—a good practical division—between the the commercial and private sectors. The hon. Member for Dudley gave in this context the example of a cruise liner. That would be over 15 tons and would therefore be zero-rated. The key to his point is the word "nor" in item I which refers to The supply, repair or maintenance of any ship which is neither—

  1. (a) a ship of a gross tonnage of less than 15 tons; nor
  2. (b) a ship designed or adapted for use for recreation of pleasure.
Those are the twin factors and both have to be applied.

Dr. Gilbert

I do not see how the hon. Gentleman can put that construction on the words in Item 1. It is either a ship of a certain gross tonnage or a ship that has been designed or adapted. It does not say that both have to be satisfied.

Mr. Nott

The hon. Gentleman used the word "or" when the word should be "nor ".

Dr. Gilbert

Oh, dear.

Mr. Nott

There is an important difference. Both criteria have to be satisfied, and I will explain why.

There are 450,000 pleasure craft in the United Kingdom and the vast majority of them are under 15 tons; 59,000 were built during 1970 and the market for pleasure craft is expanding. If the relief were not limited, primarily by the simple criterion of weight, it would place on the builders the burden of deciding whether to zero-rate or tax every vessel by reference to its expected use.

If such a liability were left to the shipbuilder, not only would it impose a difficult task on him—he would have to decide whether a boat would be used for pleasure purposes or for some of the other purposes listed in Group 9—but it would also be open to serious abuse and would entail a heavy administrative burden on the Customs and Excise in deciding whether boats were, in fact, going to be used for pleasure purposes or for transport operations.

To explain the matter in its simplest terms, all boats under 15 tons bear VAT while boats over 15 tons do not, and we zero-rate as long as they are not to be used for pleasure or recreation purposes.

I realise that some craft of under 15 tons will be liable to VAT although they are not used for recreation or pleasure purposes, and an example of this was given by my hon. and gallant Friend the Member for Carshalton (Captain W. Ellot). He questioned me about the inshore fishing industry because many fishing boats are under 15 tons and, for that reason, would not be zero-rated.

The answer to my hon. and gallant Friend's question is that fishermen with small boats below the limit are zero-rated, as he mentioned, on their output, their sale of fish, as that comes within the category of food. If fishermen wish to buy a boat and avoid liability for VAT on the purchase of that fishing vessel, it is within their discretion, as fishermen, to opt to be a taxable person, and that would allow them to reclaim through the credit mechanism all the tax already paid on the vessel.

In other words, in the case of the inshore fishermen mentioned by my hon. and gallant Friend, if they are purchasing a boat of under 15 tons which prima facie, according to the Schedule, is liable to VAT, they can overcome the problem by electing to become a taxable person and in this way take advantage of the credit mechanism and reclaim the input tax.

8.0 p.m.

Captain W. Elliot

I am sure the Minister of State is right because he represents St. Ives. But are not inshore fishermen taxable persons on their catch at the present time?

Mr. Nott

They would in the normal course of events be exempt persons in the sense that their output, if they are small fishermen, will be less than £5,000. But here they would have the opportunity when buying a boat of less than 15 tons to elect to become taxable persons and in this way they could reclaim the tax on the boat which they purchased.

In the case of the fishing industry as it exists in the constituency of the hon. Member for Kingston-upon-Hull, West (Mr. James Johnson), the boats would nearly always be over 15 tons and in that case they would be zero-rated. Therefore in his case, the problem of the small fisherman purchasing a boat of under 15 tons would not arise.

Mr. Leslie Spriggs (St. Helens)

Many fishermen operate in a very small way. Is this not a form of discrimination between fishermen who work in the larger vessels and those who earn a living probably working in the family boat of 15 tons and less? Would this not be a discrimination against the man who earns least? It would be fair and just if the tax was removed for all fishing vessels.

Mr. Nott

The proposals in the Bill overcome the problem. The hon. Member for St. Helens (Mr. Spriggs) may not have quite taken the point. If a fisherman has a boat of less than 15 tons he could elect to become a taxable person and in this way could reclaim all the tax that has been paid on the boat. He is therefore at no disadvantage.

Mr. Bruce Milian (Glasgow, Craigton)

The Minister of State is saying that the provision dealing with the I5-tons limit has been included because of the difficulty of determining what is and what is not a leisure craft. It is nothing to do with fishing. The Minister is saying that if the fishermen go through a fairly elaborate process the situation can be remedied. But surely this is completely unsatisfactory. This is a provision which has nothing to do with fishermen so why should they be put through the inconvenience of registering themselves as taxable persons when they would not otherwise be taxable persons. Surely some other drafting is possible which would deal specifically with the point about fishermen so that they were not caught by a rule that was aimed at something entirely different.

Mr. Nott

I understand the hon. Member's point, but although I think his concern is unnecessary, I will look into it. The small fisherman will not purchase a boat of this sort very often and this is the simplest way of surmounting the difficulty.

I come to Amendments Nos. 75 and 76 which are concerned with lifeboats. My hon. Friend the Member for Brighton, Kemptown (Mr. Bowden), the hon. Member for Kingston upon Hull, West and the hon. Member for Oldham, East (Mr. Lamond) have all referred to this matter. I have spoken many times about the lifeboat service in the House and I am very interested in it because there are more lifeboats in my constituency possibly than in that of any other hon. Member. I understand the point because there are some RNLI boats which fall just below the 15-tons limit and which could be liable to VAT. Far and away the greater proportion of the offshore boats are over the weight limit and therefore no problem would arise. But there are a few boats of between 14 and 15 tons and there were in 1971 about 137 inshore rescue boats. They would be liable to VAT.

Although the impact of the tax on the lifeboat services would be limited the Government feel that because of the vital and important role which the service plays in safety at sea, it would be reasonable to relieve the smaller RNLI boats of VAT in these particular instances. In this way no VAT would be payable on any of the boats belonging to the RNLI. They would be zero-rated and I am sure this will satisfy hon. Members. I hope, therefore, that the sponsors of the Amendment will accent the assurance that the Government will give further consideration to this point and, in consultation with the RNLI, will arrange to table a suitable Amendment on Report to overcome the problem.

For that reason I hope the Amendment will he withdrawn.

Dr. Gilbert

The Minister of State's last words were most welcome and on behalf of both sides of the Committee I thank him for them. Normally I would not draw attention to a slip of the tongue, however Freudian, but in this case it was a significant one. The hon. Gentleman referred to SET and then realised that he was talking about VAT. It is significant because he has just described a situation in which the smaller fishermen would have to pay a large amount of value added tax on his fishing boat and later would reclaim it from the Customs and Excise. But as I recall, this is exactly the complaint that was made about SET. It was that the tax had to be paid and claimed back later. It is therefore not surprising that the Minister of State stumbled over his cue at that point.

This matter is not satisfactory for the small fisherman. He will be discriminated against and he will be engaged in making a forced loan to the Government. Is the Minister of State suggesting that a small fisherman will register as a taxable supplier just because he will occasionally buy one large item of capital equipment, his fishing boat, which the Minister admits will only be an infrequent purchase? Unless the Minister is more forthcoming his reply will remain unsatisfactory and we will pursue the matter further on Report.

Mr. Nott

I do not think the hon. Member for Dudley (Dr. Gilbert) has appreciated the way in which the accounting system for VAT will work. In practical terms it would be possible in certain circumstances for the fisherman to reclaim the input tax even before the output tax was paid and in that way it would be the opposite of what the hon. Member claims. It could very much improve the fisherman's cash flow and in this respect it is entirely different from SET which, as he said, involved a loan to the Government.

Mr. Bowden

Many inshore fishermen have to spend a great deal of money on nets which, if damaged or destroyed, as they often are, cost £400 or £500 to replace. Would that be covered in exactly the same way?

Mr. Nott

I was coming on to that point. I was about to say that, if the small fishermen were registered, he would be able to reclaim tax on his other inputs—that is, on his gear, nets, and other such equipment. Therefore, the simple procedure of registering would be very much to the advantage of the small inshore fishermen, because in that respect he would be able to get his tax back on a number of items on which he previously would not have been able to reclaim tax. To this extent, the small fisherman, if he goes through the simple procedure of registration, will be able to reclaim tax on some of his gear as well. I am sure that the Committee will recognise that it will considerably benefit the small fisherman if he decides to register.

Dr. Gilbert

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Joel Barnett

I beg to move, Amendment No. 30, in page 100, line 29. leave out "scheduled ".

The Temporary Chairman

With this Amendment it will be convenient for the Committee to discuss Amendment No. 29, in page 100, leave out lines 20 to 22 and insert ' not '.

Mr. Barnett

As the Schedule stands, a flight which is wholly abroad or which is from the United Kingdom to a destination abroad is zero-rated. If it is a scheduled flight anywhere it is zero-rated. If it is a charter flight internally in the United Kingdom it is subject to VAT. The Amendment would remove that anomaly.

Once again we seek to help the Government with their Bill, but they do not seem keen to accept our help. As I understand it, a charter flight to Spain would be free of VAT. A charter flight to Jersey will not be free of VAT. A charter flight to Southern Ireland will be free of VAT. A charter flight to Northern Ireland will not be free of VAT. if the Chief Secretary can tell me that my reading of the Bill is incorrect, I shall be delighted to hear it.

The Chief Secretary to the Treasury (Mr. Patrick Jenkin)

It may help if I intervene now. I can understand how the difficulty has arisen. When the hon. Gentleman and the hon. Member for Ashton-under-Lyne (Mr. Sheldon) made this point in earlier debates, I was mildly startled because I did not think we had achieved this. We certainly did not intend it. It is clear that what is zero-rated in Item 3(a) is the Transport of passengers—(a) in any. aircraft designed or adapted to carry not less than twelve passengers ". Therefore, the vast majority of commercial flights which take place in aircraft designed to carry more than 12 passengers will be zero-rated. That will be so whether they are scheduled, unscheduled or charter flights. That is the intention.

Item 3(c) comes in because there is the occasional scheduled flight in a very small aircraft on what the Americans call the commuter or small feeder routes, or perhaps in a helicopter or small passenger plane. We wanted to ensure that those flights too, if scheduled, will be zero-rated.

What we want to ensure is taxed is what might be called the air taxi. This is by any standard a pretty opulent form of travel. It is also a pretty rare kind of travel. Under Item 2 aircraft used for sport or recreation will be taxed. The transport of passengers in a scheduled flight or in a charter flight in any aircraft seating more than 12 people will be zero-rated. If it is a scheduled flight, even if it seats fewer than 12 people, it will be zero-rated. That covers the overwhelming mass of passenger air travel.

I therefore advise the Committee that Amendment No. 30 is unnecessary. All that it would achieve would be the zero-rating of air taxis, and I do not believe that would be right. As I understood the way the hon. Gentleman moved the Amendment, that was not his intention. I hope that he will feel able to withdraw the Amendment.

8.15 p.m.

Mr. Joe; Barnett

I take the Chiefs Secretary's point and I am obliged to him for his interpretation. I am far from convinced that all that the Amendment would do would be to zero-rate aircraft being used as air taxis. I know there is the further point that, if the aircraft were used by a businessman for internal travel, it would be allowed as an input, although I am not sure whether this would be so because we do not know what regulations are likely to be made about input. We have already been told that car expenses will be disallowed as an input. We do not know what the regulations will be. It may be that the Chief Secretary has seen regulations and knows something that we do not.

Is there any reasons, for example, why a flight in a small plane by a businessman should be allowed as an input when car expenses are not? What about travel by a non-taxable person in a charter plane with a seating capacity for less than 12 passengers? The argument still applies; that person would pay VAT on that flight going, say, to Northern Ireland but would not pay VAT going to Southern Ireland.

Mr. Patrick Jenkin

Technically, I think that is right. One would have to search far and wide to find such people. Item 3 talks about the VAT-ing of the passenger fares, not about aircraft. It would be an unusual flight which was not scheduled in one of these very small planes which was not simply an air taxi.

It is clear from the Schedule that taxi fares will be within the VAT. It seems illogical to charge VAT on private car hire and taxis and not to charge it on air taxis. This is all we are attempting to do.

I should like further to consider the point about the disallowance of the input to private business travel, as to whether it should be treated in the same way as we intend to treat motor cars or whether, because of its somewhat different nature, simply because the opportunities for abuse are so much less, it would be appropriate to allow it as an input. There is a valid distinction between air taxis and all other forms of air travel. This is what we have attempted to achieve.

Mr. Joel Barnett

The Chief Secretary has not answered my point, which was a valid one. He has not been able to give us any figures. There is the rather silly anomaly of an internal charter flight on a plane with fewer than 12 passengers being subject to VAT. If it is a scheduled flight, it will not be subject to VAT. This anomaly could be easily removed. If the Chief Secretary is concerned about abuse, as the Government are about the input of car expenses, he could take the same precautions here as he proposes to take under the regulations.

What is the position with regard to the travel agent and his commission?

The principle presumably would apply to anyone, but perhaps one can argue it on the point of the commission of a travel agent. Let us say that he charges 10 per cent. commission. In some cases, it is rather lower. If, in a certain package, there is a chartered internal flight—to Northern Ireland, say—that light would be subject to VAT. If there is then a chartered external flight—to Southern Ireland, say—it would be zero-rated. A hotel in England would be subject to VAT but a hotel abroad would not be. A coach in England would be subject to VAT but a coach going abroad would not. How would the travel agent be able to work out his commission? How would VAT apply to his commission? Would he have to charge it on the whole package?

Mr. Deakins

It is a relief to know that charter flights are to be exempt—at least, those carrying more than 12 passengers—perhaps because of a misreading. The question my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett) is raising is important—that of inclusive holidays abroad by charter flights. Will the holiday element in them be subject to VAT, with the charter flight element not being taxed since it is a service being provided by a taxable person in this country, even though it relates to hotel accommodation in a foreign country?

Mr. Barnett

I hope my hon. Friend the Member for Walthamstow (Mr. Deakins) will forgive me if I do not answer that point. I am not replying to the debate. But both he and I have now made a number of points which have exposed some anomalies and I shall be interested to hear the Chief Secretary's further reply.

Mr. Milian

I wish to raise a brief point, about Item No. 3 of Group 9 in the Schedule. I understand what the Government are attempting to do here and I have some sympathy with them. But it seems to me that they are still going to catch certain flights which obviously they do not intend to catch. The obvious example is the air ambulance flight, normally carried out in aircraft which carry fewer than 12 passengers and not on scheduled flights. But as I read Item No. 3 it would be subject to the value added tax. If one exercises one's mind, one can find other flights which, quite rightly, the Government wish to have zero-rated, but which are not zero-rated. I want the right hon. Gentleman to reconsider the wording in relation to air ambulances.

Mr. Patrick Jenkin

To what extent, in the hon. Gentleman's experience, are air ambulances the subject of supply in the course of trade?

Mr. Milian

In the Scottish Highlands, for example, there was an arrangement for a long time—and as far as I know it still exists—between the National Health Service and a private operator for air ambulance services from the Western Isles. It is a commercial service by a commercial firm which has other commercial activities, and which would therefore be a taxable person. As far as I know, if a flight is an air ambulance flight, it is subject to VAT as this provision is worded. I am sure that if the hon. Gentleman consults the Secretary of State for Scotland, he will receive the same information as I have given.

Mr. Raymond Fletcher (Ilkeston)

Technically, this debate is about Amendment No. 30, but before my eyes, like Macbeth's dagger, is my own Amendment, No. 105—in page 100, line 29, at end insert:

': or (d) in any vehicle licensed as a hackney carriage '

—which is out of order. To argue for a zero-rating on taxi fares—the subject of Amendment No. 105—at this stage would place me out of order and so completely in the mire that you would have to stop me, Mr. Crawshaw. But I want to pose a question to the Government.

Are the Government aware that in Germany, France and Belgium taxi fares are zero-rated and that it will be extremely difficult to impose the tax on taxi fares as such? There will be difficulties in the whole taxi trade relating to another part of the Bill. Is the hon. Gentleman prepared to receive representations in the proper form—written —since I cannot make the kind of speech I would have made had Amendment No. (05 been in order?

Mr. Patrick Jenkin

Perhaps I can respond at once to the hon. Member for Ilkeston (Mr. Raymond Fletcher). Of course my right hon. Friend the Chancellor of the Exchequer will be prepared to receive representations. Perhaps the hon. Gentleman would care to write to me fairly soon so that we can consider the point he has raised. Before he came into the Chamber, I had indicated that it was the intention that taxi fares should be taxed. We were seeking to exclude, however, anything in the nature of scheduled services on post-buses and things of that sort, which operate in country areas because they are regular passenger travel.

My answer to the hon. Member for Walthamstow, West (Mr. Deakins) is, briefly, that on package tours there will have to be an apportionment. The scheduled flight part will be zero-rated and the rest of the package is intended to be subject to the tax. I think it is generally agreed that this is a form of consumer spending, and apart from selective employment tax on travel agents, it has not been effectively caught within the consumer tax net and it would seem appropriate that it should be.

The hon. Member for Heywood and Royton (Mr. Barnett) asked about disallowances. Perhaps I did not take the point as quickly as I should have done. There is a distinction between disallowing expenditure on the vehicle, which is the disallowance of the car, and disallowance of things like taxi fares and so on by businessmen, on which there is no question of disallowance.

Mr. Barnett

What about car hire?

Mr. Jenkin

Car hire is a separate point. It depends on the nature of the car hired. But perhaps I had better not be drawn into that point on this Amendment, because it is obviously technical.

The general proposition, subject to the point raised by the hon. Member for Glasgow, Craigton (Mr. Millan) about the Scottish air ambulance service, is that scheduled and chartered flights in large aircraft should be zero-rated, whereas the air taxi, the non-scheduled flight in the small aircraft, should be subject to VAT.

No one has referred to Amendment No. 29 so perhaps I need not deal with it except to say that the explanation is straightforward. It is exactly the same sort of explanation in relation to aircraft that my hon. Friend the Minister of State gave in relation to ships.

Mr. Barnett

I have never pretended to be an expert on the drafting of Bills, and I certainly do not pretend to be one on the drafting of this Bill. But it does seem rather slipshod. The hon. Gentleman will concede that it is not exactly easy to interpret this provision and I am delighted to hear that there is at least the exception to which he has referred.

It still leaves a number of matters to be taken further. For example, the Chief Secretary did not deal with the travel agent. However, perhaps I can see a reply in the pipeline. If the Chief Secretary is able to give me a reply about travel agents, I am sure that hon. Members and travel agents themselves will be pleased to hear it.

Mr. Patrick Jenkin

I have managed to scrape through my memory and I have brought up what happens about travel agents. I apologise to the hon. Member for not dealing with this matter, but it did not arise directly from the Amendments.

When an agent charters a package deal, there will be relief for the passenger transport, but the tax will be due on the hotel accommodation in this country. As I explained to the hon. Member for Walthamstow, West (Mr. Deakins) when discussing the position of the travel agent dealing with a foreign tour, the agent would have to apportion the charge and charge tax on the hotel element if it were in this country.

8.30 p.m.

Mr. Barnett

That answers the question, but I should not like to be the travel agent having to do the job. However, I think that we shall have an opportunity to return to this matter later and I therefore beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Faulds

I beg to move Amendment No. 31, in page 101, line 34, at end add:


Item No.

1. Theatre admission charges.

The Temporary Chairman

With this Amendment we are to take the following Amendments:

No. 54, in page 101, line 34, at end add:


Item No.

1. The performance of any play at premises

  1. (a) licensed under the Theatres Act 1968; Or
  2. (b) in respect of which a licensing authority may impose requirements by notice in writing under section 17(2) of the Theatres Act 1968 (which relates to plays performed at premises under the authority of letters patent).

No. 55, in page 101. line 34, at end add:


Item No.

1. Admission to an entertainment consisting of a play at premises licensed under the Theatres Act 1968.

No. 60, in page 101, line 34, at end add:


Item No.

1. Non-profit distributing museums.

No. 61, in page 101, line 34, at end add:


Item No.

1. Non-profit distributing art galleries.

No. 98, in page 101, line 34, at end insert:


Item No.

1. Admission charges to properties of the National Trust and the National Trust for Scotland.

No. 107, in page 101, line 34, at end add:


Item No.

  1. 1. Orchestral concerts.
  2. 2. Instrumental recitals.
  3. 3. Opera and ballet performances.
  4. 4. Performance of music given by ensembles before a seated audience.

Notes:Items I, 2, 3 and 4 do not include—

  1. (a) performances of music at hotels, night clubs and restaurants; or
  2. (b) performances of music presented other than by performers present and performing.


Item No.

1. Performances of music by orchestras or ensembles subsidised by the Arts Council or any regional arts association.

Mr. Faulds

I shall be speaking mainly to Amendments Nos. 60 and 61 and my colleagues will be returning to the others.

The Amendments seek to establish recognition of the special status of certain cultural and educational institutions which exist and are conducted for the general public good, delectation and enlightenment. But the argument for such a special status is based not merely on the civilising function of these institutions but on the fact that the profits from any services which are provided by them are necessarily devoted towards the cultural and educational objectives which they exist to promote.

A great deal is currently said but all too little actually done, relative to the national wealth, in favour of assisting those institutions to improve their contributions towards the raising of the quality of life of the community, but in this context—and I stress that it is only in this context—I am not pleading for direct assistance. The Amendments do not go further than merely to refrain from making the blunder of equating these institutions with run-of-the-mill profit-making trading organisations which may be regarded as proper subjects for taxation of this nature. But I am afraid that even now the Government are seeking to justify yet again the historic gibe that we are a nation of shopkeepers, even in matters of this sort.

It is true that it may be pointed out, as the Chancellor pointed out this afternoon, that one important section of the country's museums, those run by local authorities, will not be adversely affected by the tax. But this will be not for the excellent reason that they are museums which exist to serve and educate the general public, but because they are one of some various local authority services. This is no more than a roundabout back-door way of attaining a result which it would be much more in keeping with the country's dignity as a civilised State to enact in a much more straightforward manner.

It is sad but true that the shadow of philistinism is falling heavily over the Government. The impression has steadily developed over many months that they are more eager to coerce the independent trustees of our national museums and galleries to carry out certain measures contrary to their experienced judgment than to work together with them for the general good. What is required of the Government is for them to steel themselves to make some gesture, some positive indication, let us hope, that they positively desire the well-being and the enhancement of the cultural and educational functions of our museums and art galleries.

The Amendments would do something to indicate that in such non-political matters as the welfare of our museums and galleries there still survives some common ground across the Floor of the House of Commons. It can hardly be doubted that the institutions themselves would wish for zero-rating. It is known that the Standing Commission on Museums and Galleries has expressed concern over the possible effects of value added tax. It would be surprising if none of the institutions had forborne to request what the Amendments seek to enact. Perhaps the Minister can enlighten us on this crucial point. Have such representations been made by any of the national museums or galleries? I would like an answer to that.

What are required now are parliamentary deeds rather than placatory words, to do something to repair the damage already done and partially to restore that good will which has been so heavily battered. I need hardly offer the Committee more than one guess as to the vexed topic to which I refer. A broad-minded gesture now would balm the wounds, perhaps even heal the hurt. It would give some substance to the flood of theoretical verbiage that emanates so relentlessly from ministerial offices in Belgrave Square. There was a time in the affairs of men when another David fought the Philistines. Would that this Government would emulate that splendid example.

[Mr. E. L. MALIALIEUin the Chair]

Mr. Hugh Jenkins (Putney)

The Amendments to which I wish to address my remarks are those concerned with the theatre—and the Committee may not be surprised to hear that. As is known I have close interest in the theatre, not perhaps a financial one but an extremely long and personal one and an association with the British Actors Equity Association which once again I perhaps ought to declare.

The claim for zero-rating for the theatre is based upon a number of propositions from which I propose to select the most important. The first is that to apply the tax in this area will not be to substitute one tax for another as it will be in many cases. It will not be a case of purchase tax or SET going and VAT taking its place. It will be a new imposition on what has hitherto been freed from taxation by successive Governments of both parties.

Entertainment tax was abolished in 1957 and many right hon. Members now in the Cabinet played a leading part in the agitation which led to that abolition. On coming to office the present Government carried out the undertaking given by the then Labour Government before the General Election to relieve the theatre of SET. We have a situation in which Government after Government have declared that this is not a sphere for the imposition of indirect taxation. The whole record since 1957 is of Governments saying that this was not something they ought to tax. What we ask in the Amendment is for something which it has previously been thought right to do.

The second point concerns the question: why have Governments felt that this was not a proper area for taxation? One reason is that the rise of first the cinema and later television meant that the theatre ceased to be worth taxing. That is a rather mundane reason but nevertheless it is a reason. The theatre ceased to be the main source of public entertainment. It declined so disastrously over whole areas of the country that they became theatrical deserts.

People began to think of the theatre not as a regular commercial enterprise but rather as a source or base from which other forms of entertainment sprang. It was seen to be precious and public money began to go into it. Local authorities too, finding that they were in danger of becoming theatreless, began to preserve their old theatres and to build new ones. So we had a change in the pattern of the theatre which coincided with the decision of the Government to remove the tax. It is important to note that this change in the pattern occurred during the period of the removal of tax. From that moment, when public money began to go into the theatre, the position became rather absurd. The State does not normally tax what the State provides.

I recognise that VAT in its philosophy is intended to be a comprehensive tax, although not entirely so because various exceptions have already been made. In principle, however, it is intended to be comprehensive. But even in the Bill that comprehensive nature does not embrace. for example, education or health. The theatre is increasingly becoming grant-aided. Most of the theatre outside London is publicly-owned. The buildings belong to municipalities or to bodies created or supported by municipalities for the purpose of theatre ownership and they are played in more often than not by publicly-supported companies in receipt of a grant in aid voted in the House of Commons and included in the education Vote.

Therefore, in that respect, the theatre has perhaps become an extension in the area of adult education. The State now sensibly takes the view that it is no good teaching appreciation of Shakespeare and Shaw without providing facilities for that appreciation to be exercised in practice. For this reason we begin to see the theatre as an extension of the educational process, providing the adult with the opportunity of exercising the appreciation instilled in him during his education so that he is not cut off at the end of it.

Tastes can be acquired, but unfed they die. The State has a duty to provide basic artistic facilities for people to enjoy. The effect of the Bill is that people may read Shakespeare untaxed, but the moment they do with the Bard's words what was meant to be done with them —speak them on the stage—they have to pay. That is the essential anomaly which we wish to be removed. Under the Bill I can buy one of Shakespeare's books and read it without paying tax. The moment I take the book on the stage and start to speak from it, the tax is imposed. This is an anomaly which I think the Chancellor of the Exchequer will, on consideration, want to remove. It will not do.

The reasons which persuaded previous Governments to relieve the theatre of tax are even more valid today than they were then. This is not a taxable commodity or even a taxable service. It is something fundamental, particularly to the people of these islands. It is an art in which we enjoy almost unquestioned world leadership.

That brings me to another proposition. As a dollar earner the theatre is unsurpassed. It exports nothing. It imports no precious raw materials. It simply brings Americans here in very large numbers. Sometimes they are fascinated with the place and stay, but even when they go home they leave behind very substantial amounts of dollars. During their stays and vacations in this country they hand over more dollars than many industries succeed in earning with a great deal of effort.

A recent examination of the reasons which American visitors gave for visiting this country showed that coming to see the British theatre was very high in the list. If the theatre was seriously damaged, the consequence would be a grave drop in our dollar income.

The third proposition is that the theatre should be zero-rated under Group 8 which zero-rates exports. If it is sensible not to tax the export of British whisky it is equally sensible not to tax the input on dollars which come here as a result of the British theatre.

8.45 p.m.

Another proposal is that the theatre should be zero-rated under Group 3 with books and so on. There are a number of reasons for zero-rating but here is another I have already touched upon. Shakespeare as book is free but Shakespeare as performance is taxed. That is obviously wrong.

The intention of zero-rating books, as I understand it, is to free culture and ideas from taxation. It is internationally recognised as an area which should be free from taxation. The modern theatre is increasingly an area of communication, of expression of ideas. Some of us may sometimes consider that some of the ideas are repulsive, but there are salutary and eternal propositions which are being currently expressed in the theatre in the idiom of our time and are comprehended by young people.

The new theatre audience is increasingly a young audience which is extremely enthusiastic about new developments in the theatre. That is true in London and many parts of the country. It is a culture, and surely the Chancellor will not reach for his taxation gun and shoot it down.

I do not want to make too much of a song and dance about actors. It is not my custom to do so. No one forces anybody to become an actor. However, unemployment is at a horrible level at around 50 per cent. The dedication of many actors to their task is a real one. It is hard work and although the rewards are absurdly uneven, they do not on average even reach the national minimum.

I have been serving on a seat prices inquiry under Mr. Aubrey Jones. The inquiry has not yet published its report but it is sufficiently near for me to be able to reveal that the conclusion it is likely to come to is that there may be a margin for increasing seat prices outside London. The inquiry has some doubt about seat prices inside London but envisages the possibility of an increase. That is something which I hope and believe the inquiry will propose.

However, if VAT is added it will remove this flexibility and the possibility of any further margin of increase in seat prices will be destroyed. The margin we foresee all over the country is certainly not more than 10 per cent. That increase would be taken up by VAT. The consequence of adding VAT is not the intention of the tax. VAT is essentially a tax to be paid by the ultimate consumer. The intention is that at the end the consumer pays the additional tax. If that became impossible in the theatre, all that could be done would be to reduce production costs to hold the present level.

If VAT is put on the theatre an author will start writing two- and three-cast plays. He will not still write 12- and 15-cast plays. There will be no more plays of that size written; authors will be cutting them down to two- or three-cast plays. Putting on VAT would do severe cultural damage. Many of us still like to see a large, full theatre with a reasonable number of people performing. I do not say always, but sometimes.

The occasional smash hit in London can be very profitable. For the most part, four out of six productions are failures, the fifth barely scrapes home, and the sixth is a smash hit. As to the generality of experience, the theatre would suffer grave injury out of all proportion to the small amount of revenue secured by the imposition of the tax.

Those are some reasons why I hope the Chancellor will be able to say something encouraging to us when he replies to the debate.

I will sum up the argument. First, this is a hitherto untaxed area. Second, for a large part it is the recipient of State aid. Third, it is an art which can be an extension of the process of education and which gets its Vote from the Department of Education and Science. Fourth, it is a great dollar-earner. Fifth, it is in the area of ideas which should be relieved as books are relieved. Sixth, it has the0 highest unemployment rate in the country. Finally, the tax cannot be passed on to the consumer.

There are many claimants for zero-rating. I say nothing about the tax now. It is no secret that I do not like it. However, if I were committed to the tax I should recognise the difficulty which right hon. and hon. Gentlemen opposite are in, because there are many claimants for exemption.

One or more of the claims which have been put forward could be made on behalf of one or more of the claimants for zero-rating. However, I am sure there is no other claimant on whose behalf they could all be made. I am therefore providing the Government with a completely watertight case for accepting the Amendment without committing themselves to extending it one iota beyond the point which I have given to them. I do not wish to denigrate the claims of others, but if it is the Chancellor's desire to be careful not to go too far, I have given him the opportunity of doing so and I hope that he will seize it.

We also offer a watertight definition in the Theatres Act, 1968. The definition has been used more than once, so there is no problem of saying that we cannot define this matter. It can be done, it is unique, and we can provide for it.

Taxation on the theatre among the Six is chaotic. It is rated or not rated differently in each country. If we are really to give a lead in Europe—I will not stress my ideas on this matter just now—what better lead could we give than to seek to harmonise the theatre at zero-rate and to set our own example now by starting at that rate? Let us lead in that harmonisation by zero-rating in the area of culture. We should then be doing something really worth while.

On 27th March, 1957, a Motion appeared on the Order Paper. It was unique in its time by collecting the signatures of 358 Members of the House, many of them now distinguished Cabinet and other Ministers. That Motion called for the abolition of entertainment duty on the living theatre, and it succeeded in that idea. I have not had time to examine all the 358 signatures but I am sure that they included those of the Chancellor of the Exchequer and of the Minister of State. They certainly included the signatures of most of their governmental colleagues, and I ask them this evening to be true to what they signed then.

I am sure that they will be true to their signatures to a Motion which drew attention to the importance, the prestige, the culture and the well-being of the nation to which the theatre contributes. It is to that importance, that prestige, that culture and that well-being of the nation that I dedicate this Amendment, which I am confident the right hon. Gentleman is about to accept.

Sir Harmar Nicholls

It is very helpful to have the historical background put so clearly by the hon. Gentleman the Member for Putney (Mr. Hugh Jenkins), and it will aid anyone else who wishes to make other points to have that basis on which to build.

I want to refer particularly to Amendment No. 55, acceptance of which would add to the zero-rated list: Admission to an entertainment consisting of a play on premises licensed under the Theatres Act 1968. The Amendment is very humble and easily understood. I do not approach the matter from the point of view of helping the theatre, though it so happens that the theatre is the basis of what we are asking my right hon. Friend again to look at. I want to approach the subject from the point of view of the nation, and of someone in the same party as the Chancellor of the Exchequer, and of someone who is a real supporter of my right hon. Friend's Budget. I believe that at a very important time in our history he has produced a Budget which is absolutely right. I understand that in order to get our tax situation into something like civilised terms he has had to find some new approach to the taxation system. He has not come to his decision easily, but only after much research and thought.

My right hon. Friend has decided that value added tax is the right basis on which to build a simpler and better understood system which will be for the general good health of industry and of everyone in the country. I know that he believes his choice of this weapon to be right, and I am prepared to accept his judgment. I appreciate the balancing of figures he has had to undertake, and that too much interference with the basis of value added tax would injure what he hopes to obtain.

I can therefore well understand my right hon. Friend saying, as he has said on more than one occasion, "There is no question of my being able to deviate by releasing too many industries and interests from the effects of VAT. The package must go on more or less as I have put it, otherwise the balances, the forecasts and the estimates cannot be sustained. That would injure the whole purpose of my Budget, which is to get our taxation system on to a decent level."

At the same time, he showed that he was not a man of stupid rigidity. He said that we had to keep more or less to the general pattern that is in the Finance Bill, but he adopted an approach which removed him from the absolute blanket rigidity which would have meant that everything had to come under VAT. For very good reasons that he has explained, food is not to be included, and newspapers and magazines are not to be included. I accept his judgment. He is absolutely right. To have attempted to impose a rigid blanket value added tax over the whole field and to have ignored cases where it was shown that the tax would press too hard would not have helped his case. In such instances he has given way even before presenting his case to the House.

9.0 p.m.

I approach my appeal to my right hon. Friend to give sympathetic consideration to the Amendment on the basis that I well understand that he has to resist the dozens of Amendments which call for a weakening of the VAT. For him to give way on a large scale would make nonsense of his Budget. Believing as I do that it is a good Budget, that VAT is a good way to start and that the Chancellor must have it more or less as he asks for it so that it will work, I realise that in asking him to add to the list of zero-rated items this one item a strong case has to be made out for it. My Amendment is a very narrow one, and the area it will cover is easily identified. I believe that a case can be advanced which will justify him in making a concession.

Why do we have a Committee stage? The Chancellor has had many consultations on the tax and has given a lot of thought to it. He has included food, newspapers and magazines in the Schedule, but that does not mean that he and those who advise him monopolise all thought on this matter. The idea of bringing it to Parliament is to enable the Chancellor to share the mind of Parliament. Those who support the Chancellor see the need for him not to give way on too many occasions, but this is an item which will not interfere with his budgeting. It can be easily defined and it will not open the door for other people to say, "You have given way on that, why cannot you give way on this? "At the end of the day the Amendment will actually save the Treasury money, or at any rate the Chancellor will not lose anything.

From an Answer to a Question which I put dowry I understand that if VAT is applied as now set out in the Finance Bill, the Treasury will receive from the theatre £3 million a year. The Government have made it clear that they believe it is essential to maintain a successful living theatre, for all sorts of reasons, many of which have been mentioned by the hon. Member for Putney. Everyone admits that, if we are to play our part in the civilised world we must have a live, successful theatre.

We all know that, because of the competition of television and other attractions, if the theatre is left without some form of Government subsidy it will fade away. All Governments have thought that the theatre should be maintained and have subsidised it. So if £3 million is taken away from the theatre in the form of VAT, it is 100 per cent. certain that £3 million or more will have to be given back again to the theatre. I cannot see the sense of taking away the money with one hand and giving it back with tile other. That is what makes the theatre a special case.

Apart from giving entertainment at home, apart from being a cultural asset that everyone wants to maintain, the theatre has a great potential in terms of the contribution it can make to our balance of payments strength. This country is the centre of the world's theatreland. It is admitted on all sides that we lead the way and that we have a product and a potential that is unequalled by any other country. We must remember that the entertainment potential in the world is only at the beginning. We have only to think of the large parts of the world which are still without television to come to the conclusion that eventually they will need to have products to fill their screens.

By building on these special skills, I believe that we can become the future Hollywood of the world. Just as Hollywood for a short period became a prosperous area because it was able to fill the cinema screens with its products, I believe that on a wider and more satisfactory scale we can lead the world in providing a service which will grow and grow over the years. I prophesy that in 20 years from now, if we take advantage of our special position of skill and leadership and training in our theatres and fully use all our great names in the theatre, our balance of payments will benefit because we shall attract even greater earnings than we now experience from the sale of motor cars.

In 20 years' time many under-developed countries will be making their own motor cars, but they will not even then be able to provide the special sort of skills which exist in our theatres. Apart from educational and cultural considerations, it is right that we should look at this matter on economic grounds so that the Chancellor should see that he must not kill something that offers all this potential.

It may well be argued in the Government's reply that a figure of only £3 million will not make that much difference to the situation in the theatre. It must be recalled that when in 1957 a Conservative Government removed entertainment tax this meant that in the following 10 years as a result of that relief the number of repertory companies operating outside London with Arts Council support rose from 28 to 52. The theatre experienced a great revival. This gave a shot in the arm to the industry and this has helped to make us the theatrical leaders of the world. This surely is a small amount when set against the total Budget, and I emphasise that my right hon. Friend will eventually have to give back this subsidy in one way or other.

In support of my claim that we are the centre of activity in the theatre world, I should like to quote an article in this morning'sDaily Telegraphwhich reads as follows: Students from the Theatre Department of the Southern Methodist University in Dallas, Texas, will take their studies to the theatres of London this summer. From July 20 to August 16 they will see 19 plays, visit theatre workshops, meet with teachers, actors and backstage staff. The group expected to number between 50 and 100 of both sexes will be housed in the new London School of Graduate Business Studies, overlooking Regents Park. The cost is £460 each for the BOAC charter flight between New York and London, housing, food, tickets and tuition.

That is significant evidence in support of the claim that we are the centre of a great industry offering great potential to the world at large.

I quite appreciate my right hon. Friend's real difficulties in giving way on any of these Amendments. However I ask him to regard this as a special case. I believe that it is a special case. One might argue the case of the industry itself. It has a great deal of unemployment, and one ought to want to help that. It has a contribution to make to people's leisure activities. We are all aiming, I hope, as new machines are invented and new ideas come along, to move to more production from a shorter working week. One of the great problems of the future will be the increased leisure time resulting from it. It will have to be filled. Theatre-going is one answer.

I can well understand my right hon. Friend saying that he would like to find some way of helping what we are pleased to call the subsidised theatre. I can understand my right hon. Friend saying, in those cases where I have argued that there will have to be a subsidy in any event, that he would like to find a way of relieving only that section of VAT or, alternatively, some means which would make it less of a hardship. I can also understand my right hon. Friend saying, because of the way the commercial theatre seems to be heading, that he would not wish to relieve West End theatres or the commercial theatre generally. However, if he takes that view, clearly he has not looked behind the flamboyant headlines about the theatre carried in many of our newspapers.

My right hon. Friend need have no fears. He should remember that overwhelmingly our provincial theatres are owned by local authorities and are supported by either national or local subsidies. If my right hon. Friend wants to help these theatres and if we want more of them—certainly we do not wish to see any more go out of existence—touring companies have to be built up under the auspices of the commercial theatre to operate in those theatres and maintain local interest in them. It is very good to have local repertory companies producing good quality plays and maintaining what we are pleased to call culture.

But we have to get a return on the bricks and mortar in the buildings in which those plays are performed, which are also owned for the most part by local authorities. If that is to be done, it is necessary to take productions to them which will encourage the general public to go. If we can get the commercial theatre and its West End names and reputation going to provincial theatres, people will begin to get into the habit of going to the theatre, and that helps not only the commercial theatre but the repertory theatres as well.

Mr. Hugh Jenkins

I remind the hon. Gentleman that we are about to set up a Theatre Investment Fund which, on the basis of a mixed economy, has this precise intention. The hon. Gentleman may feel that the establishment of such a fund on a joint basis adds strength to his argument.

Sir Harmar Nicholls

I was about to mention that in passing. It was my intention to draw the attention of my right hon. Friend the Chancellor of the Exchequer to the report of the inquiry on which the hon. Member for Putney and I served for two years which considered these problems in depth. It made it clear that the success of the subsidised provincial theatre depended upon there being the attractive West End type of commercial production maintaining standards in provincial theatres.

It is impossible to separate one from the other. There are some great names which make our National Theatre acclaimed throughout the world. We have the tremendous reputation of the Stratford Theatre. But what really happens for the most part is that the great names who are the attractions in the subsidised theatres have been built up in the commercial theatre. It is the commercial theatre with its productions and experience which has made those names big enough to get the crowds to support even the subsidised theatres.

9.15 p.m.

My right hon. Friend is looking particularly benign. He has had an extremely successful day. We have got through our business at considerable speed, thanks to his leadership. Our rate of progress is to a large extent due to his generosity in meeting the requests of some of my hon. Friends on previous Amendments.

I ask my right hon. Friend to look at this in the light of the position as it is now, not in the light of giving special preference to a certain section such as the theatre. From the nation's point of view he will not be giving anything away. A sum of £3 million is important to this industry. When £2¼ million was taken off it by the reduction of entertainment tax, the industry received a great fillip, and that shows that the figure in question here is of considerable importance.

Mr. Crouch

My hon. Friend has mentioned the figure of £3 million which the Chancellor estimates will be his return from this tax. It would help the Committee if my hon. Friend could tell us the extent of the subsidy paid through the Arts Council and through local authorities to the theatre, both in the provinces and in London.

Sir Harmar Nicholls

The Arts Council's subsidy is considerable, and I have here a list of all the theatres which receive help and the amounts which they receive. At one time I had contemplated boring the Committee by reading the list, but I am sure that that is not what my hon. Friend wants. The total is about £6 million, but I think that that has been increased over the last 12 months, thanks to the generosity of my right hon. Friend.

My right hon. Friend has proved himself to be a good Chancellor. He will prove himself to be an even better one if he shares the views of his colleagues. He has opened the door in order to avoid the rigidity of the all-embracing VAT, and he is right to do that. He has increased the grant to the Arts Council from £9 million to £12 million because he has recognised the importance of keeping it alive.

My right hon. Friend belongs to a party—indeed, he is one of the leaders of it—which has a better reputation than any other for helping the live theatre. A previous Tory Government removed entertainment tax, and he himself removed SET. He will therefore act in accordance with his past record if he agrees to consider carefully what we have been suggesting to him tonight. It is not fair at this stage of the Committee to ask the Chancellor to give a quick "Yes" even though it amounts to only £3 million, but it is fair to ask him for an undertaking to consider the matter between now and Report stage of the Bill. If he is prepared to give special thought to the claims of the industry, we may be able to withdraw our Amendments.

If we could get from my right hon. Friend a hint that he will look at this matter again in the light of the arguments that have been put to him, I feel fairly sure that all those who have put down Amendments would feel inclined to withdraw them and not push them to a vote, because this is a non-party matter. I hope that no one will make this a party issue in the sense of trying to embarrass my right hon. Friend in the theatre world.

Mr. Brian Walden (Birmingham, All Saints)

If the kind of assurance for which the hon. Gentleman has asked were given, subject to our reserving the right to raise the matter again on Report we would, indeed, do what the hon. Gentleman has suggested.

Sir Harmar Nicholls

There it is. This is an all-party approach to my right hon. Friend on a genuine basis of wanting to help the theatre. This is not a matter of wanting to embarrass him. The amount involved is not big enough for that. It is not a matter of wanting to score party points. It does not have a big enough pull in the country for that.

Hon. Members on both sides of the Committee want to maintain the living theatre because it is an important part of our cultural heritage and has great potential for the future. If my right hon. Friend is prepared to consider the matter in that spirit in the hope that we can arrive at a solution which does what everybody, including the Chancellor, wants, this debate will not have been wasted.

Mr. William Hamling (Woolwich, West)

The hon. Member for Peterborough (Sir Harmar Nicholls) may not want to embarrass the Chancellor on this matter but in the context of VAT as a whole I would like to embarrass him so much that the Government would be defeated, because I regard this as a monstrous tax. The more one comes across examples of the type we are discussing in this group of Amendments, the more monstrous it appears to be.

We will come later to other examples which prove how monstrous VAT is, particularly in relation to goods which are bought by the poor. We are thinking not so much of the sumptuary aspects of the tax in this group of Amendments but of the aspect of it which represents a tax on knowledge.

The Chancellor may say that in other parts of the Schedule he is exempting the Government from the charge of taxing knowledge because books, school equipment and so on are exempt. However, one can take this whole question of taxes on knowledge far wider than books. The theatre, music and art galleries are all part of culture and as an ex-schoolmaster I regard them all as a part of the education system.

The Chancellor may know that I was once a university extra-mural teacher. I assure the Committee that music appreciation, drama and the rest are all part of this general sphere. Attendance at theatrical performances is part of the equipment of any well-educated person, so that I regard VAT in this field as very much a tax on knowledge.

We have had this argument before. I recall that some years ago in Committee upstairs we were successful in persuading the then Government to exempt orchestras, theatres and other activities from SET. The Government of the day were convinced that they were all aspects of education and that to tax them represented taxing knowledge.

It is not simply a question of calling this a part of entertainment generally, though I suppose in a broad sense one could say that we are dealing with entertainment. The hon. Member for Peterborough spoke of the commercial theatre. but even so I am not sure that one can say it is simply entertainment. It is extremely significant and in the tradition of this country. When we speak of the Memorial Theatre at Stratford-on-Avon we are not talking just about a place where entertainments are given in the same fashion as, say, years ago Englishmen were entertained by bull-baiting, which perhaps was a theatrical performance of another sort.

The amount of tax involved is not important. The principle is at issue here. I hope the Chancellor will be persuaded to give a favourable answer, not simply to the Amendment which deals with the theatre but with Amendments dealing with museums, art galleries, National Trust admission charges and musical performances, a subject to which I shall return.

I have previously declared my interest in that I am a trustee of a famous museum, the National Maritime Museum. It seems ridiculous, not to say daft, to use a good old-fashioned English word, that we should on the one hand be shovelling out vast sums of public money to subsidise these institutions and on the other hand be taxing them in this ridiculous way.

I am thinking particularly of museums. The Government are bent, I understand, on imposing charges on museums. There are whispers on the grapevine that they are now seeing sense on that. Let us hope that in this matter, too, they may see the light of reason and exempt museums and art galleries from VAT. If they do not, they will go down in history as the Philistine Government, the Government which taxed the arts. Man does not live by bread alone and certainly no man is complete unless he has cultural background and some cultural heritage. This is part and parcel of the equipment of a civilised person and I hope the Chancellor will bear that in mind.

My hon. Friend the Member for Putney (Mr. Hugh Jenkins) spoke about actors and actresses. But if ever there was a group of people who deserved better of us it is the orchestral performers and the musicians. We think of the years of training they undergo, yet how many of them ever receive the financial return their talent and artistry should entitle them to expect? They do it not for the money but because they have some inner urge which makes them want to perform, to sing or to play. Our orchestras have in the past been in great financial straits and we know that some of our great orchestras are in that position now and are threatened with closure. It may well be that if we add this little extra load to their backs it will lead yet again to the possible destruction of some of our great orchestras.

If I speak of England I hope my hon. Friend the Member for West Lothian (Mr. Dalyell) will forgive me. But England did not have a high reputation in music until recently. I now see my hon. Friend the Member for Glasgow, Craigton (Mr. Milian) present, and when I look at him I naturally think of the Glasgow Orpheus Choir. [An HON. MEMBER: "It is defunct."] Perhaps it is now defunct. In that case I will talk about the Glasgow Philharmonic Choir which is not defunct and which many people, even in Sir Hugh Roberton's time, regarded as a much finer choir than the Glasgow Orpheus. These are great institutions which will be sorely penalised if this extra tax is placed upon them. They are institutions with a great international reputation. Orchestras like the Royal Philharmonic, the Philharmonic and all the rest have a great international reputation, and unless we are very careful they may die. We subsidise them to a tremendous extent and it seems odd that we should subsidise with the right hand and tax with the left.

We think not only of the great evenings at the Festival Hall when there is a great orchestra playing with a great international conductor. We also think of the smaller occasions, of the chamber concerts. Surely chamber music in this country is an art form which is sorely strained already. It does not appeal to a very large public and there is not much money in it. It relies tremendously on patronage and Government support and even on local authority support. It seems that this is in many ways a much more deserving cause—I hope that my hon. Friend the Member for Putney will forgive me if I say this in his presence—than the live theatre. A performer of chamber music does not have a commercial fall-back as some of the great actors and actresses have. Chamber music performers are in a very special and restricted field.

9.30 p.m.

Mr. Crouch

I have been a committee member of the London Chamber Orchestra, which is now dormant because it cannot afford to put on programmes of serious chamber music and charge the high prices it has to charge to fill the Queen Elizabeth Hall. The orchestra can sustain itself only by working at lower prices with a subsidy or by putting on popular music to attract people at higher prices.

Mr. Hamling

This is an additional argument to that which has been advanced already. The Amadeus Quartet might put on a concert in the suburbs, say, and attract no more than 100 people. Such small bodies as the Amadeus Quartet and the Allegri Quartet, composed of highly talented musicians, often give concerts at great personal sacrifice. Are we to impose on them the added burden of VAT?

There is also the question of VAT on musical instruments, some of which are very expensive. A good oboe costs several hundred pounds. The Chancellor will doubtless wish to consider this aspect, particularly with regard to amateur orchestras, which are often the recruiting grounds for professional musicians, and with regard to young students who have not got the resources that other people may have.

This is part of English culture which has come on a great deal during the last 30 or 40 years. It would be a great tragedy if Britain were to lose the advantages she has acquired in that time and the reputation she has acquired as a nation which encourages music and musicians. I hope that the Chancellor, as well as thinking of the live theatre and museums and art galleries, will have a special place in his heart tonight for music and musicians.

Mr. Jeffrey Archer (Louth)

I support Amendment No. 55. I should like the live theatre to be zero-rated. One of our greatest and most successful industries is that which caters for visitors from overseas. A survey carried out at the four main ports of entry and the four main airports indicated that 58 per cent. of those visiting Britain gave as their first reason that it was the finest theatre land in the world. Any thought of that standard being lowered terrifies me, because it would be a ripple effect. Not only the theatre would disappear, but all the other things which are associated with its success would disappear.

I remind the Chancellor of the Exchequer, as did the hon. Member for Putney (Mr. Hugh Jenkins), that in 1957 it was a Conservative Government that removed entertainment tax. The Conservative Government did it because they realised that theatres were disappearing. My right hon. Friends have also kept their promise to remove selective employment tax from the theatre, for exactly the same reason. They have increased the grant from £6 to £9 million. So, with one hand my right hon. Friend gives £3 million and with the other he proposes to take it back. The value added tax is a new tax. It is not levied at the moment on theatres. If that is so, why impose it now? If there had been a tax from which he had captured £3 million, I could understand his wanting to keep it. But the Treasury is not getting £3 million in tax on the theatre, so why bother to impose VAT on the live theatre now?

Many people will casually stand at the bar or walk around the corridors saying, "The theatre is a great success—look at all those actors in ' Jesus Christ, Super Star ' or Godspell ' who are millionaires overnight." It is true that those actors do earn a lot of money but the fact remains that only one theatre in five in the West End is making money. All the rest are losing money.

If my right hon. Friend imposes this tax on theatres, he will not close the leading West End theatres but the repertory theatres throughout the country. The big ones will remain. It is the little theatres which will be hit the hardest. There is an exemption of £5,000 for the amateur theatre, and it is a joke. It is of no consequence. I give an example which the hon. Member for Smethwick (Mr. Faulds) and the hon. Member for Putney will know—the Questors, one of the finest amateur groups in the country. With a £5,000 exemption, it will be through in a month. My right hon. Friend will be taxing an amateur group whose object is not to make money but to provide theatre for the area in which it operates. I hope that he will at least have no hesitation in totally removing the tax on amateur groups.

Since the war, one theatre in five in this country has closed. That in itself is a tragedy. What has taken their place? Office blocks have taken the place of 72 per cent. of the theatres closed. No one can pretend that those theatres can ever be opened again. They have been knocked down and office blocks and supermarkets put in their place.

The hon. Member for Putney mentioned unemployment among actors. Again, one hears people saying, "They do not have to be actors." That is true. But everyone in life would like to do the job he wants to do because that is what job satisfaction is about. There are people who will say, "I would rather work in repertory in Nottingham, Edinburgh or Glasgow for £8, or £9 a week than earn £30 or £40 a week as a docker." The fact that they take far less is proof that they are worthy of the job; it is also proof that they should be allowed to go on doing it, and we should not in any way lower their chances.

The hon. Member for Woolwich, West (Mr. Hamling) said that this was a tax on education. I also see it as a tax on education and on those young people who queue up at Stratford-on-Avon. One of the most wonderful things is to see, in August, at Stratford, the young of our country sleeping outside the theatre, attending its performances during the day, coming out and sleeping outside again all night in order to go in the next day again. I have done it myself, as other hon. Members have. And my hon. Friend wants to put a tax on these people! I call that a tax on education —nothing less.

When a young company from overseas tours the country, perhaps a young team from an under-developed country, will it be taxed? Will it have to pay value added tax? Such companies, presenting ballets, music, or plays, have small enough audiences as it is and if they are taxed, the result will be that they will not come. In that way, opportunities for young people in other countries will also be lost.

Some hon. Members have seen this country lead the world in many things. My right hon. Friend the Chancellor of the Exchequer had a distinguished war record and remembers the country leading in many matters. Through a twist of history and for other reasons, we can no longer pretend to hold that high place. But there is one respect in which we are totally unrivalled throughout the world, and it is in the live theatre. From the West End to Broadway, throughout every capital, no one doubts that we have the finest theatre in the world and the highest standards.

Those who are against us may say that only 1 per cent. of the people in this country go to the live theatre, but I counter that by saying that standards of English television and films are so high because those taking part learned first in the repertory theatres of this country and then in the West End. They did not learn in front of the television or film cameras. Thus, the standards enjoyed in the theatre are passed to the mass public on television and films. If theatres are closed, or if standards are lowered, it will not only be the live theatre which will suffer, for the entire nation will be affected by the lowering of standard in films and on television.

The hon. Member for Smethwick, who leads for the Opposition on this subject, has found pleasure in calling us philistines on the subject of museum charges. I have fought that legislation tooth and nail. As I have observed the arranging of debates, that on Vietnam next Monday, for instance, I have begun to hope that there will not be enough time for the Bill concerned to return to the Floor of the House.

Mr. Faulds

Good boy!

Mr. Archer

That is not praise indeed.

I happen to know, as do many of my hon. Friends, and, I suspect, some hon. Members opposite, that the Chancellor is a great lover of the theatre. He is not a man who does not know where it is or who has never seen it. He is a man who enjoys theatre as much as I do. My hon. Friend the Member for Peterborough (Sir Harmar Nicholls) said that he had been a successful Chancellor, and there were shouts from the Opposition at that. but he has been successful. He has done amazing things about taxes, things which Labour Members did not even dream of doing. He has lowered taxation by £3,000 million while all they could do was to put it up.

Mr. Milian

Give him a part!

Mr. Archer

It is time for the Chancellor to make this tiny concession and remove this tax and to be magnanimous, as my hon. Friend the Member for Peterborough suggested. Here is a chance for him to say that the feeling on both sides of the Committee is strong and that he will give way to it. I hope that he will find it possible to think again and to tell us that there is no point in imposing a tax where it was not imposed before, that he will remove it, that it is a bad tax.

Mr. Brian Waldenrose

Mr. Arthur Blenkinsop (South Shields)

On a point of order, Mr. Mallalieu. Some of us have Amendments on the Order Paper which are included in this discussion. I do not see how anyone can wind up the discussion without hearing the case.

The Second Deputy Chairman

It is not for me to say who winds up or how. The hon. Gentleman can come in at any time there is no limit.

9.45 p.m.

Mr. Brian Walden

May I at once set my hon. Friend's fears at rest. I have neither the power nor the desire to preempt the discussion in any way. I have risen at this time, and the Committee will realise it was by prearrangement, to give the Chancellor, who is to answer some of the points that have been raised, the chance to state a view. It may well be advantageous to the Committee that I should make a few remarks and that the Chancellor should state a view. Then my hon. Friends and others can continue the argument from there.

I am gratified that the Chancellor has come here to reply to this series of Amendments, as I am sure are my hon. Friends. The right hon. Gentleman has many responsibilities and the fact that he has chosen to be present now I take to be an example of how extremely seriously he treats this matter. My hon. Friend the Member for Smethwick (Mr. Faulds), who speaks on these matters for my party, dealt with Amendments Nos. 60 and 61. I want to mention only Amendment No. 31.

I am loaded to the gunwales with all the quotations beloved of hon. Members opposite, especially those on the Front Bench opposite, from prior election addresses, previous debates and all the rest of it. I do not intend to make use of any of them. I do not intend to make a speech which is in any sense party political. I shall no doubt revert to my normal habits on other discussions, as we all shall, but on this occasion I want to put a case not buttressed by quotations from election addresses, statistics or anything out of party manifestos but based on something which goes to the heart of the matter.

There has been no speech tonight which has not made reference to what I take to be the general feeling in the Committee, namely, that we are not dealing simply with the question of what the Revenue can raise or what are the difficulties of zero-rating. We are talking about an important cultural heritage. The Chancellor will doubtless recall that once some years ago he and I had a train journey together when we happened to meet inadvertently. I do not think we talked about anything else on that journey except the theatre.

We talked about the theatre because one of the great joys of my life has been to see the enormous revival in the prestige not only of the British theatre but all the things that stem from it. The theatre in this country is the seed-bed of all the other dramatic arts in which this country excels. Whether we are talking about actors, producers or directors, all of whom are quite crucial in cultural activities relating to the dramatic arts, none of these would be possible without the live theatre. It is no judgment of the live theatre to talk of the number of people who actually go to see it. Its importance is far more transcendent than that.


I will not "rat" on the Chancellor, but I seem to recall that when he and I were talking all those years ago we did not altogether dissent on that judgment. This is the important point at stake here. A discussion on these Amendments and especially Amendment No. 31 takes the argument on to a quite different level from the normal argument about revenue considerations and what would be the consequences of zero-rating and all the rest. The inevitable result of not zero-rating the theatre will be that the Government will restore the entertainment tax which a Conservative Government quite rightly took pride in abolishing.

Although the hon. Member for Peterborough (Sir Harmar Nicholls) argued the case in terms of a great industry and its great export potential, I will not argue on that basis. I could make an attempt to quantify, as the hon. Gentleman did —I have enough paper on the subject—but I will not bother. That does not seem to be the point.

If the old entertainment tax comes back there is not the slightest doubt—I do not think it has been questioned by either side—what will happen to the live theatre in this country, given the state of employment in the industry, the amount of money that is available and the way that money is often used. The inevitable result will be that theatres will have to close. There will be further unemployment among actors. Many actors and directors who would otherwise receive training will not do so. That will reflect itself in dramatic artin toto.It would be a thoroughly bad thing to do.

It does not make sense to level VAT in this direction when both sides of the Committee are urging the Chancellor to zero-rate it. Nobody, certainly I am not doing so in speaking officially for the Opposition, has tried to make a party point of this matter. It seems absurd to refuse to zero-rate it and give a £12 million subsidy to the Arts Council to support artistic activity when at least £6 million of that subsidy goes to the theatre.

If theatrical performance and the theatre in general have to bear VAT, presumably they will go to the Arts Council, announce the number of closures and then request the Government for a larger subsidy to try to do something about it. It is absurd to do it in this way. If the Chancellor will give us any word of reassurance, any clear indication, subject to our right to raise the matter again on Report, that he is prepared to listen sympathetically to the views of the Committee, we will not press the Amendment to a Division. However, we regard this as an important issue. It transcends party politics and touches one of the most important aspects of any nation's life, its cultural activity. If the right hon. Gentleman does not give such reassurance, we will press the Amendment to a Division.

Mr. Barber

I will first answer one factual question put to me in the agreeable and short speech of the hon. Member for Smethwick (Mr. Faulds). The hon. Gentleman asked whether I had had any represenations from museums and art galleries. My recollection is that I have had a letter from the standing commission expressing anxiety about VAT and that several national museum directors have inquired about their position under VAT. It was for that reason that in the debate earlier today on another Amendment I dealt at some length with the position of museums, art galleries and VAT.

The hon. Member for Birmingham, All Saints (Mr. Brian Walden) said that this was an important matter. Of course, he is right. It is natural that those who have a special concern for the theatre and the other activities which are covered by the group of Amendments we have been considering, like others with special interests of one kind or another, should wish to see relief from VAT.

If I am brief on this occasion it is not because I do not recognise the importance of the theatre and museums and their cultural contribution. They are an attraction for overseas visitors as well as giving pleasure to our own citizens. That is not the sole consideration.

I have had many talks with my hon. Friend the Member for Peterborough (Sir Harmar Nicholls) since the Budget about the theatre and VAT. I know how strongly he feels about the matter and I respect his sincerity which was clearly apparent in his speech this evening.

I also listened with great care to the argument put forward by my hon. Friend the Member for Louth (Mr. Jeffrey Archer). It is clear from what was said by the hon. Member for All Saints and my hon. Friends the Members for Peterborough and Louth that they at least know of my interest in the theatre.

Recently I reread the speech made by the hon. Member for Putney (Mr. Hugh Jenkins) in the Budget debate when he referred to these matters. If relief were provided for the theatre it would be almost impossible to stop there. I will explain why in a moment.

Going to the theatre or to a concert incurs expenditure on a form of entertainment. It is for the individual to decide whether he wishes to go to the theatre, to a concert, to a cinema or to a football match. I agree that each plea for relief has its special circumstances. More often than not the theatre is associated with culture; the cinema is the popular entertainment of millions of people in this country; and sport is often said to be a good thing for one reason or another—sometimes simply because it enables or encourages young people to spend time in the open air.

If special relief were given as suggested in the Amendments, one would be bound to pose the question: where do we stop? To many millions of people the cinema and sport are just as important as the matters covered by the Amendments.

In his speech in the Budget debate the hon. Member for Putney recognised that a line had to be drawn somewhere. Tonight he referred particularly to the treatment of books, which was mentioned in the Conservative Party's election manifesto.

On 23rd March the hon. Member for Putney said: the Government say that they intend to give zero-rating to books, booklets, brochures, pamphlets and leaflets, newspapers, journals and periodicals. If that is to be carried out, why is not the theatre included? Are we not in the area of communications and the spread of ideas? There is no real argument for stopping at newspapers, books and periodicals." —[OFFICIAL REPORT, 23rd March, 1972; Vol. 833, c. 1735.] However, the hon. Gentleman, to do him justice, went on to admit quite frankly that if the theatre were zero-rated there would inevitably be claims for zero-rating for the cinema and other sport. With complete honesty, he said that that was what he personally would like, but for him the theatre came first.

Mr. Hugh Jenkins

I am grateful to the right hon. Gentleman not only for giving way but for the reference he made to what I said about the matter. I should point out that tonight I provided him with a complete cage in which he can grant theatrical relief if he chooses to do so. The process of being Chancellor of the Exchequer, as the right hon. Gentleman knows, is that of drawing lines. He is there to draw lines. We suggest that he should draw that line wider than he is now doing. There is no logic in his saying" Because I have to draw a line, therefore I choose to draw it here ". There is no reason why he should not draw the line where we advocate it should be drawn,

Sir Harmar Nicholls

There is no question that the line cannot be drawn at the point suggested in the Amendments. If it be that my right hon. Friend does not want to do that, that is one thing. But he should not adduce the argument that it cannot be drawn. Of course there will be other claims. I suggested that the other claims would not have the same strength as this one. The line can be drawn and we should be grateful if my right hon. Friend would draw it.

10.0 p.m.

Mr. Barber

That is certainly true. I make no mistake. I am fully aware of the points made by the hon. Member for Putney and by my hon. Friend the Member for Peterborough. I know where they would like the line to be drawn. My hon. Friend says frankly that he would like it to be drawn here and that he would be content that we should not take similar zero-rating action on sport, and so on. But there are later Amendments to be dealt with, and there are other people who feel equally strongly about those other matters. It is for me, as the hon. Member for Putney rightly says, to decide and to advise the Committee where the line should be drawn.

Mr. Brian Walden

It is most courteous of the right hon. Gentleman to give way and I have no desire to interrupt him, but I must take him up on his remarks about entertainment, the logic of which I do not understand. He says that one can choose to go to the theatre, the cinema, etc., and pay the tax. But one can also choose to take a coach trip to the seaside. That would be zero-rated. There will not be a tax on such a trip because transport vehicles carrying more than 12 passengers are zero-rated. There are under the Bill forms of entertainment which are zero-rated and I do not understand the line that the right hon. Gentleman is now attempting to draw.

Mr. Barber

The point that the hon. Gentleman is now making is that once one provides a relief in one area there is an argument for going further. We did provide zero-rating for transport. It is true, and I do not say this in any party political sense, that most people did not expect that we would zero-rate transport, but, having done so, we see the great difficulties we get into the further we go, because one is then asked to go still further.

Mr. Michael Grylls (Chertsey)

I plead with my right hon. Friend to dismiss from his argument the question of pleasure in entertainment in terms only of the theatre —because, after all, entertainment exists in books and magazines as well as educational and cultural matters—and concentrate on the educational and cultural value which the theatre has for all the rest of the activities which spring from it.

Mr. Barber

That is precisely the point. We zero-rated all kinds of books, as we had undertaken to do in the election manifesto—and it is for argument whether it was right to do so—principally on the ground, I imagine, that they were concerned with knowledge; but there are other types of books which also circulate throughout the country. The problem is that once one goes further along the road there will inevitably be other claims. What I am saying is that it must be recogised that there are millions of people who get their pleasure and relaxation in other ways. I have quoted football matches, and one could add cricket matches, too.

Those who have argued their case have been very frank and honest, and I think that they will respect me for putting what I believe equally sincerely to be a very strong case also. I ask whether those people I have in mind are not equally deserving? Could not the plea be made that they also constitute a special case; that some of the circumstances that concern them are unique? No one can fairly accuse me, certainly after what has been said on both sides today, of being other than very sympathetic to the activities dealt with by the Amendments, but to me the entertainment of the great mass of British citizens is at least as important. and whatever the problems of individual theatres may be I do not believe that the British theatre will be crippled by the value added tax.

The hon. Member for Putney referred quite properly to the theatre as being a great dollar earner, and if he looks at the situation in London he will be the first to agree that the theatre here is flourishing as never before. He makes the point that the theatre is not taxed at present, but I am sure that he will in fairness realise that one of the principal purposes of the change over from purchase tax and selective employment tax to value added tax is to move to a more general coverage with many goods in future bearing a far smaller burden of tax than they hitherto have done.

I know that the Opposition take the view that they would rather retain purchase tax and SET, but it is an essential part of the argument that, if one believes that there should be a broader based tax which will mean a considerable reduction in the burden of taxation on many things, it is inevitable, if the yield of taxation is to be maintained, that there will be some increase elsewhere. This raises the whole question of whether or not it is a good thing to switch to a broadly based tax at a standard rate as low as the standard rate in any other country.

I ask the Committee to consider the position of the theatre-goer who may have to pay more for his seat. For him the tax on many goods will go down and, although the price of his theatre ticket may be increased, he will not necessarily be worse off. There is a whole range of goods on which the burden of taxation will be reduced and on which I believe passionately it should be reduced and should have been reduced a long time ago.

The hon. Member for Smethwick once again dubbed us as a Government of Philistines. One particular aspect has been referred to by several hon. Members on both sides of the Committee. Again they may take different views on whether this is the right answer in certain spheres, but I give this assurance. The theatre, music, ballet and so on are already subsidised by the taxpayer, and the amount of that subsidy has been increased successively by both Governments. The hon. Member for Woolwich, West (Mr. Hamling) referred to our great orchestras with international reputations and said that he feared they may die. That is why, whether right hon. and hon. Gentlemen opposite agree or disagree with what I am about to say, it is right that I should give this assurance on the Amendment.

The Arts Council, in calculating the level of subsidy required by the various institutions it supports, will decide after April, 1973, whether any additional help is needed. When VAT is introduced purchase tax and SET will be abolished, and it will then be for individual managements to decide whether they need to raise their charges. If there is an additional tax burden which individual managements cannot fully offset by increasing their charges, the Government will make special supplementary provision during 1973 for the Arts Council. This in turn will enable the Arts Council to make special provision for the various institutions before the end of the financial year.

Hon. Members on both sides of the Committee will realise that this is a very far-reaching commitment—[HoN. MEMBERS: "Oh."]—all right, but last year the Arts Council gave grants and guarantees not only to our major national institutions—the Royal Opera House, Sadler's Wells, the National Theatre, the Royal Shakespeare Theatre and the London orchestras—but also to a wide range of other bodies. Those include 17 opera groups, one of which is described as the Intimate Opera Group of Eltham—I am not sure what it does, but it has a grant —nine ballet companies, including the London Festival Ballet, the main provincial orchestras, 20 groups promoting concerts and no less than 95 theatres and theatrical groups. It is not true to say that these great national institutions to which the hon. Gentleman referred will die.

Mr. Brian Walden

The guarantees which the right hon. Gentleman has just given about what the Arts Council will do are extremely welcome. We have so far managed to keep the party element out of the discussion, but there was nothing that the last Conservative manifesto laid more emphasis on than the absurdity of putting money in one pocket and taking it out of the other to achieve a balance. Is that not precisely what the Chancellor is doing here?

Mr. Barber

That is not so, because they are not on all fours.

My hon. Friend the Member for Peterborough knows that I have given the most careful thought to the arguments which have been put forward by those who are particularly interested in the theatre and in the other activities mentioned in this group of Amendments, but I must ask the Committee to reject these Amendments.

I do so first because in a system which involves a broadly-based tax it would be wholly wrong to exclude one element of entertainment, however high its quality. Secondly, it would be wholly unfair to the great mass of British citizens, who take their entertainment and relaxation in a variety of ways, to ask them in effect to subsidise one particular sector of entertainment by providing relief from VAT. I believe that this would not be right and I must ask the Committee to reject these Amendments.

[Sir STEPHEN MCADDENin the Chair]

Mr. Alexander W. Lyon(York)rose

Mr. Blenkinsop

On a point of order, Sir Stephen. I have an Amendment which is supposed to be taken with this group of Amendments and so far I have not had a chance to speak. I hope I shall be given the opportunity to do so.

The Temporary Chairman

I have noted the hon. Gentleman's comments. Following the hon. Member for York (Mr. Alexander W. Lyon), I shall certainly call the hon. Member for South Shields (Mr. Blenkinsop).

Mr. Lyon

The Committee will have found the Chancellor's reply quite unsatisfactory. It is not enough to say in regard to areas where the cultural arts are kept going by State subsidy that if one increases the tax through VAT one gives back an equivalent amount in additional subsidy. A whole machinery has to be set in being to collect the tax and recoup it. All this adds to the strain of keeping the cultural arts going.

Let us assume that the London Philharmonic at the moment charges £2 for a ticket. What will happen in future is that it will have to charge another 10 per cent. VAT. Does it put up its prices and lose custom and thereby add to the drain on its revenue, or does it ask for greater assistance from the Arts Council? I do not know whether it is legal for it to act in this way, but I wish to ask whether it is supposed to contain the 10 per cent. VAT within the existing £2 ticket and thereby reduce its income and ask for the extra subsidy in that way. If this is to be the position, clearly there would be no difference in cost to the concert-goer and the number of people attending may not decline. But if the number attending concerts is likely to decline, then this will be a serious blow to the whole concert-going public and will affect the viability of some of these great orchestras. If that is a possible danger, the Chancellor of the Exchequer must see that it is not enough to say that the subsidy will be increased to meet the extra 10 per cent. VAT.

Mr. Barber

The hon. Gentleman has put a point which I shall be happy to look into. The basis of the subsidy provided through the Arts Council is that, instead of giving relief from VAT across the board—including the whole of the commercial theatre, reviews, ice rinks and all the rest—what we are trying to do through the Arts Council—and this has been successively the policy of various Governments—it will direct assistance to particular quarters, and one relates to the quarter mentioned by the hon. Gentleman. I shall consider the particular point he raised which is a very real one.

Mr. Lyon

I am grateful for that assurance, but does not the right hon. Gentleman see the difficulty that is engendered by his approach if we are to give back the money to these cultural amenities which can already be State-subsidised. This will face them with the threat of losing audiences and will harm their contribution to the nation's cultural activities. Therefore, is it not better to zero-rate all those activities which at the moment get a subsidy from the Government? That would be one line which could be held. It would not apply necessarily to other areas of entertainment about which the right hon. Gentleman is worried, and it would make a very strong defence to any further emotional appeal to extra zero rating.

10.15 p.m.

The logic of the argument is irresistible. If the State is already giving money to a cultural activity, what is the point of taking away the tax and giving it back later? One might just as well start from the principle that if the cultural activity already receives State subsidy, to that extent it should be relieved of VAT. I should have thought that that was the principle to follow.

I am speaking especially about concerts. Almost every musical facility in the country relies on State aid to keep going. It could not exist without it. The amount which the concert-goer contributes to the outgoings of our orchestras is only about one-third of the total cost. But in Germany and over most of Europe it is much less. It is only about 20 per cent. of the total cost. It follows that the State contribution in European countries is very much higher than ours. In most of them VAT is charged at a very much lower rate than 10 per cent. Concerts have the benefit of a reduction in the standard rate in order to help them.

The case for the theatre is different. The theatre has its commercial section, where it is viable. That does not apply to concerts. Concerts are not capable of being kept going on their receipts alone. They must always have some kind of State subsidy.

The amount which is at stake is so pitifully small that one wonders why the Chancellor bothers in this area, anyway. It is only £100,000 over the whole of admission charges to concerts. One would have expected the right hon. Gentleman to have relieved concerts of the need to establish the necessary clerical machinery for people to take in VAT when clearly the money involved will have to be paid back.

I add one more word on amateur societies. One of my organisations in York, the York Light Opera Society has written to me pointing out the farce of an amateur society which has only one concert a year having to pay VAT. From its one presentation, it has a turnover of about £7,000, which brings it within the range of VAT. How can it possibly hope to keep going if it has to charge another 10 per cent.? It does not receive any assistance from the Arts Council. It has to rely upon voluntary contributions and the revenue from the sale of tickets. In those circumstances, should not some distinction be made in respect of amateur societies exempting them completely from VAT?

Mr. Blenkinsop

In view of the lateness of the hour, I do not intend to speak at any length. I find it an extraordinary procedure that, when one has taken the trouble to put down an Amendment which is supposed to be considered with this group of Amendments, one is given no proper opportunity to raise the matter —

The Temporary Chairman

Order. I hope that the hon. Gentleman is not casting any reflection upon the Chair. I called the hon. Member for York (Mr. Alexander W. Lyon) because he was the only hon. Member to rise on that side of the Committee. For that reason, I was obliged to call the hon. Gentleman—[Interruption.] The hon. Member for South Shields (Mr. Blenkinsop) rose later. He must not cast reflections on the Chair in that way.

Mr. Blenkinsop

I have no desire to waste the time of the Committee. I am concerned with a practical matter. I had put down an Amendment, but I shall not spend time on it.

I serve on the executive committee of the National Trust, and I wish to raise an important matter on behalf of the National Trust, both in this country and in Scotland. They are disturbed that not only are admission charges to their properties likely to be charged under VAT, but that there is some danger that

the membership of the National Trust in both countries may be charged. too. They want some assurance from the Government that that will not be so.

We delight in the fact that last year about 3 million people came to our properties, and we want to do nothing to deter them from coming again. The danger is that even this small addition of VAT may do some damage in that respect.

This is a complicated tax. We believe that as a charity we shall have the right to reclaim some of the expenses. I do not believe that this is a suitable time at which to raise these matters in the detail that I should wish to do. I hope to seek other opportunities of doing that.

I wish to make a protest both about the manner in which I have been denied the opportunity to raise the matter fully tonight and to draw the attention of the Chancellor to the urgent need to look again at the position of the National Trust in this regard, in spite of its real and sincere welcome for the assistance that is given in other ways in the Budget.

Question put,That the Amendment he made:—

The Committee divided:Ayes 92. Noes 109.

Adley, Robert Green, Alan Neave, Airey
Alison, Michael (Barkston Ash) Grieve, Percy Noble, Rt. Hn. Michael
Allason, James (Hemel Hempstead) Grylls, Michael Nott, John
Astor, John Hall, John (Wycombe) Onslow, Cranley
Atkins, Humphrey Hannam, John (Exeter) Owen, Idris (Stockport, N.)
Baker, Kenneth (St. Marylebone) Haselhurst, Alan Parkinson, Cecil
Barber, Rt. Hn. Anthony Hawkins, Paul Powell, Rt. Hn. J. Enoch
Batsford, Brian Hayhoe, Barney Raison, Timothy
Bitten, John Higgins, Terence L. Reed, Laurance (Bolton, E.)
Blaker, Peter Holland, Philip Rees, Peter (Dover)
Boardman, Tom (Leicester, S.W.) Holt, Miss Mary Rost, Peter
Body, Richard Hornsby-Smith,Rt.Hn.Dame Patricia Russell, Sir Ronald
Boscawen, Hn. Robert Howell, David (Guildford) Scott, Nicholas
B[...]ay, Ronald Howell, Ralph (Norfolk, N.) Shaw, Michael (Sc'b'gh & Whitby)
Brinton, Sir Tatton Jenkins, Patrick (Woodford) Shelton, William (Clapham)
Chapman, Sydney Jopling, Michael Simeons, Charles
Chataway, Rt. Hn. Christopher Kershaw, Anthony Sinclair, Sir George
Churchill, W. S. King, Evelyn (Dorset, S.) Soref, Harold
Clarke, Kenneth (Rushcliffe) Kinsey, J. R. Speed, Keith
Clegg. Walter Kitson, Timothy Spence, John
Cooper, A. E. Knight, Mrs. Jill Stanbrook, Ivor
Corfield, Rt. Hn. Frederick Knox, David Sutcliffe, John
Costain, A. P. Lamont, Norman Taylor, Frank (Moss Side)
Crowder, F. P. Lane, David Tebbit, Norman
d'Avigdor-Goldsmid.MaJ.-Gen. James Legge-Bourke, Sir Harry Thomas, John Stradling (Monmouth)
Dean, Paul Le Marchant, Spencer Trew, Peter
Deedes, Rt. Hn. W. F Lewis, Kenneth (Rutland) Tugendhat, Christopher
Dixon, Piers Loveridge, John Ward, Dame Irene
Elliot, Capt. Walter (Carshalton) McCrindle, R. A. Warren, Kenneth
Emery, Peter McNair-Wilson, Patrick (New Forest) Weatherill, Bernard
Eyre, Reginald Mather, Carol Wells, John (Maidstone)
Fenner, Mrs. Peggy Maxwell-Hyslop, R. J White, Roger (Gravesend)
Fidler, Michael Meyer, Sir Anthony Winterton, Nicholas
Fisher, Nigel (Surbiton) Moate, Roger
Fookes, Miss Janet Monks, Mrs. Connie TELLERS FOR THE NOES:
Foster, Sir John More, Jasper Mr. Victor Goodhew and
Fowler, Norman Morrison, Charles Mr. Tim Fortescue.
Fox. Marcus Mudd, David

Question accordingly negatived.

To report Progress and ask leave to sit again.—[Mr. Barber.]

Committee report Progress; to sit again tomorrow.

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